Q. Only $1800 are out of pocket, so That's all I can use for AOTC, right?
A. No. It does not matter what money was actually used to to pay what. You are allowed to allocate all the tuition & fees expenses to the AOTC (and away from the scholarship; essentially allocating R&B to scholarship).
A. You are saying to create my own numbers of qualified expenses and non-qualified expenses for 1098-T.
Q. Yes. But, "allocate", not "create".
You have $3100 of qualified expenses. They can all be allocated to the AOTC (unless the scholarship is restricted to paying tuition). I have revised/corrected my answer above to:
The parent enters the 1098-T with $3100 in box 1 and box 5 blank. The student enters the 1098-T with 0 in box 1 and $5303 (the taxable amount of the scholarship, since there is no longer any tuition to allocate to the scholarship).
If the program asks (it may or may not) how much of the scholarship was used for R&B, answer $5303.
Q. So when TT asks what part of the scholarships covered room and board, do I show the full $4000 or only part that was paid by scholarships ($2500 or so)?
A. You show the amount you are allocating to room and board, $5303.
To make some of the scholarship taxable, you may have to tell TT how much you want taxable by saying it was used for (actually "allocated to") room &board. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.
