I should add that after I posted this question, a similar question was shown to me. In that question, the advice was given:
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all her scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on her return. That way, the parents (or herself, if she is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. **My note: here, you advised for the student to deduct UP TO the amount needed to claim AOC.**
In the same answer, you said, "Student has $10,802 in box 5 of the 1098-T and $2859 in box 1. At first glance she has $7943 of taxable income and nobody can claim the American opportunity credit. But if she reports all $10802 as income on her return, the parents can claim $2859 of qualified expenses on their return. **My note: here, you said for the student to report ALL of the scholarship, not just the amount UP TO the amount needed to claim AOC. Can you please explain why?
