Q. 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?
A. Because all of the student's tuition ($2859) was less than the maximum amount ($4000) allowed to claim the AOC.
I edited my standard answer, at that post, for the poster's details. Here's how the generic post goes:
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income, instead of $6000.
