The 1098-T is only
any informational document. The numbers on it are not required to be entered
onto your tax return. If you claim the tuition credit, you do need to report
that you got one. However receipt of a 1098-T frequently means you are
either eligible for a tuition credit or deduction or possibly have taxable
scholarship income. You claim the tuition
credit, or report scholarship income, based on your own financial records. Unfortunately that sometimes means working
around the 1098-T and the TurboTax interview.
As, TurboTaxMarilynG suggested, you can and should claim the tuition credit or 2017. You may have to deal with reporting some of the scholarship as income, on your child's return, next year. But that's a good thing. The tuition credit is much more generous than the small amount of tax a student pays.
You will not get a corrected 1098-T from the school. The 2017 scholarship will, most likely, be reported on the 2018 1098-T. You'll have to do some bookkeeping to keep track of the money. You are not locked in to what's on the 1098-T.
It gets even better. There is a tax “loophole” available. The student
reports all his scholarship, up to the amount needed to claim the American
opportunity credit, as income on his return. That way, the parents (or himself, if he 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. You cannot do this if the
school’s billing statement specifically shows the scholarships being applied to
tuition or if the conditions of the grant are that it be used to pay for
qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T
and $8000 in box 2.
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.
