topic Re: 1098t loop hole in Education

1098t loop hole

Familyman0409 — Thu, 06 Feb 2025 05:13:13 GMT

After researching i see there is a loop hole . So when filing my daughters 1098t she has box 1 7875 and box 5 is 1016. So how do i do the work around to be able to get the credit? How would i need to fill it out for my taxes and hers?Im planning to file her as a dependent on my taxes. And she will be filing her taxes also.

Re: 1098t loop hole

Familyman0409 — Thu, 06 Feb 2025 05:13:48 GMT

Re: 1098t loop hole

KrisD15 — Thu, 06 Feb 2025 04:25:53 GMT

YOU, the Taxpayer claiming the student, use the 1098-T to claim an Education Credit.

If the 1098-T shows that taxable income needs to be claimed, that income is claimed by the student.

TurboTax can handle either scenario. Be sure to list the student as a dependent on your return, and your income first (so the credit will apply to your tax liability first if applicable) then the 1098-T and any 1099-Q attributed to the student.

Be sure to complete the entire education section until you get to the "Maximize My Tax Break" screen.

IRS Pub 970 has some good suggestions and worth the time to look over

Re: 1098t loop hole

Hal_Al — Thu, 06 Feb 2025 13:05:16 GMT

You don't need to use the loop hole. That's for parents whose student's 1098-T shows more scholarship in box 5 than qualified expenses in box 1.

You are qualified for the credit without a workaround. You claim the credit by entering the 1098-T, on your tax return and following the interview. . She does not enter the 1098-T on her tax return, at all.

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Re: 1098t loop hole

Familyman0409 — Thu, 06 Feb 2025 14:00:02 GMT

Sorry i mis typed that. box 5 has 10,016.00

Re: 1098t loop hole

Hal_Al — Thu, 06 Feb 2025 14:28:45 GMT

There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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 conditions of the grant are that it be used to pay for qualified expenses.

Using an example with your numbers: Student has $10,016 in box 5 of the 1098-T and $7875 in box 1. At first glance he/she has $2141 of taxable income and nobody can claim the American opportunity credit. But if she reports $6141 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 $5141 of taxable scholarship income, instead of $6141.

The way you enter this in TurboTax (TT), when asked if any of the scholarship paid for room & board, in the parent’s interview, enter $6141 (in the 1st example above).

You can both use the 1098-T to enter the expenses. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother and puts the income in the right place on the tax forms, line 8r of Schedule 1.

You essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers (box 5 blank). You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. The 1098-T that you enter in TT is not sent to the IRS.

Enter the 1098-T, exactly as received, on the student's return. Enter book and computer expenses separately. In his interview, you should eventually reach a screen called "Amount used to calculate education credit" (or similar wording). Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return (line 8r of Schedule 1).

Be advised some people are saying they're not getting the "Amount used to claim the tuition credit" (or “Education Expenses used for a Tax Credit”) screen on the dependent’s interview. Check the student information work sheet (part VI, line 17) to verify it was entered. If not, the alternate workaround is to enter $4000 less than the actual box 1 amount, when you enter the 1098-T.

There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on her return, with 0 in box 1 and the taxable amount in box 5. Enter no other numbers. In that case the amount in the "Amount used to claim the tuition credit" box is 0 (if it comes up).

Re: 1098t loop hole

Familyman0409 — Thu, 06 Feb 2025 15:12:10 GMT

Alright , its showing she will have to pay taxes when entering.

I have been experimenting some. Will this work?

On the parents return in box 1 i put 1500 and left all other boxes at 0 including box 5, this game me some credit which im happy with, now on the students return i entered 6375 in box 1( original line on box 1 is 7875.00 on the 1098t) and i left the 10,016.00 in box 5. with all of her other income from here job w2s this leaves her paying very minimal on her taxes. like 5 bucks.

Will this be ok to file it like this?

Re: 1098t loop hole

Hal_Al — Thu, 06 Feb 2025 15:22:39 GMT

Q. Will this be ok to file it like this?

A. Yes, you have the basic idea and your numbers seem right.

And "getting some credit" is a good idea. But I would use $2000 instead of $1500. The American Opportunity Credit (AOC) is 100% of the first $2000 and only 25% of the next $2000. That said, most families still come out slightly ahead using the full $4000. At worst (usually) the parent gets 25% of the 2nd $2000 but the student only pays 22%.

Re: 1098t loop hole

Familyman0409 — Fri, 07 Feb 2025 13:02:26 GMT

Alright.

Familyman0409

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1098t loop hole

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last updated ‎February 05, 2025 9:13 PM

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Familyman0409

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KrisD15

Employee Tax Expert

YOU, the Taxpayer claiming the student, use the 1098-T to claim an Education Credit.

If the 1098-T shows that taxable income needs to be claimed, that income is claimed by the student.

Be sure to complete the entire education section until you get to the "Maximize My Tax Break" screen.

IRS Pub 970 has some good suggestions and worth the time to look over

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Hal_Al

Level 15

You don't need to use the loop hole. That's for parents whose student's 1098-T shows more scholarship in box 5 than qualified expenses in box 1.

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Familyman0409

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Sorry i mis typed that. box 5 has 10,016.00

yesterday

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Hal_Al

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The way you enter this in TurboTax (TT), when asked if any of the scholarship paid for room & board, in the parent’s interview, enter $6141 (in the 1st example above).

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Familyman0409

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Alright ,

On the parents return in box 1 i put 2000 and left all other boxes at 0 including box 5, now on the students return i entered 5875 in box 1( original line on box 1 is 7875.00 on the 1098t) and i left the 10,016.00 (the original scholarship amount) in box 5.

She no longer has receipts for the computer and books she bought so i cant enter that.

Will this be ok to file it like this? And its all legal right?

Re: 1098t loop hole

Familyman0409 — Sat, 08 Feb 2025 12:01:12 GMT

Alright ,

She no longer has receipts for the computer and books she bought so i cant enter that.

Will this be ok to file it like this? And its all legal right?

Re: 1098t loop hole

Hal_Al — Sat, 08 Feb 2025 13:01:58 GMT

Q. Will this be ok to file it like this?

A. Yes. That should give you the right calculations on the tax forms. $2000 credit for you ($800 on line 29 of form 1040 and $1200 on line 3 of schedule 3 and included in line 20 of form 1040) and $4141 taxable scholarship for her on line 8r of schedule 1 (then line 8 of form 1040).

Q. And its all legal right?

A. Yes. The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.

Q. She no longer has receipts for the computer and books she bought so i cant enter that?

A. You don't need receipts at the time you file. That's only needed if you get questioned by the IRS. A credit card statement with a charges might suffice for the computer. The fact that the book was required, just knowing the cost might be enough. That said, yes, having receipts is best.

Re: 1098t loop hole

Familyman0409 — Sat, 08 Feb 2025 13:03:01 GMT

Thank you so much.

Ill have to look in to her book and PC receipts. I think she was able to pull up where she used funds to buy books and other stuff at the school store It doesn't show what she bought but it shows the bills.Another thing is your probably only going to get audited if your doing some wrong anyway .

Appreciate all your help.

Re: 1098t loop hole

Hal_Al — Sat, 08 Feb 2025 13:03:14 GMT

Note: I edited the above to correct a line number

Re: 1098t loop hole

Familyman0409 — Sun, 09 Feb 2025 04:13:06 GMT

Hello,

I really do appreciate your help.

I do have one more queston,

I looked on my 1040 and In line 29. it says american oppurtunity credit from form 8863 line 8. $1000

Ive looked at every line 17 on the form and every one of them are empty.

Am i doing something wrong?

The students return looks right and it has the 4141 in the right llines.

Re: 1098t loop hole

Hal_Al — Sun, 09 Feb 2025 12:50:13 GMT

I typed the wrong line # the first time (it's since been corrected). The non refundable portion of the AOTC is on line 20, not line 17.

If you are getting $1000 (the maximum AOTC) on line 29, then you will get $1500 on line 20* (not $1200). It also means you are using $4000 of tuition to claim the credit, not $2000. That means she needs to report $6141, not $4141, as income.

*Note line 20 may include other credits from Schedule 3 (but it's a little unusual).

Re: 1098t loop hole

Familyman0409 — Sun, 09 Feb 2025 14:38:04 GMT

I have nothing in line 20 (Amount from schedule 3, line 😎

If that's the right line. this is the form 1040 correct?

Re: 1098t loop hole

Familyman0409 — Sun, 09 Feb 2025 14:43:36 GMT

I have nothing in line 20 (Amount from schedule 3, line 8.)

If that's the right line. this is the form 1040 correct?

Re: 1098t loop hole

Hal_Al — Sun, 09 Feb 2025 15:01:46 GMT

Q. If that's the right line. this is the form 1040 correct?

A. Yes.

Line 3 of schedule 3 is Education credits from Form 8863, line 19. That eventually gets to line 20 on the 1040.

On the other hand, the amount on line 29 (form 1040) comes from line 8 of form 8863. It's unusual that both numbers don't get to the 1040. Review form 8863. You may have answered something wrong in part III.

Re: 1098t loop hole

Familyman0409 — Sun, 09 Feb 2025 16:11:00 GMT

Ive gone over it and resubmitted it. Still getting the same thing. I dont wanna get rejected.

Just to go over it all again

On the original 1098t

Box one 7,875

Box five. 10,016

On the parents return in put in 2000 and left all other boxes empty

and this gives me a credit of 800.

What would I be doing wrong or answering wrong?

Re: 1098t loop hole

Hal_Al — Sun, 09 Feb 2025 16:28:50 GMT

"On the parents return in put in 2000 and left all other boxes empty

and this gives me a credit of 800.'

Then there should not be $1000 on line 29.

What's on form 8863? $2000 or $4000? Try deleting the 1098-T and re-entering.

Why are you doing $2000 instead of the more generous $4000?