AOTC specific question.

[A_N_Consultant]

Hello,
We are filing our own taxes for the first time and everything is going great except one specific case and we cant find clarity on.

We received our daughters 1098t for 2024. Box 1 is 18000, Box 5 is 12000. All other boxes are 0. There is a specific question that says:

"Have you received any tax-free education assistance in 2025 related to the 2024 academic period?"

We dont know if we should answer yes or no. Our school reported all the costs for the spring 2025 semester in the 2024 1098t form. It applied some, but not all of our scholarships. There is a 3300 pell grant and 500 tuition incentive program grant that was applied to our school account in the first week of January 2025. And we are assuming that will be apart of the 2025 1098t form for next year.

So do we answer "no" and claim the full aotc or "yes" and report the 3800 as part of "Have you received any tax-free education assistance in 2025 related to the 2024 academic period?"

Thanks.

[KrisD15]

Education credits can be complicated because it is your choice, claim the AOTC or allocate the scholarship which will post in 2025 to the 2024 tuition.

The American Opportunity Tax Credit maxes out with 4,000 expenses. 

Your 1098-T shows 6,000 excess (18,000 - 16,000)

If you have 1,800 in additional expenses, such as books and supplies, you can do both, claim the full credit and also report the 2025 scholarship (meaning you won't have to claim the scholarship next year) (6,000 - 3,800 = 2,200  4,000 - 2,200 = 1800)

You can do it either way. Make your decision based on what you think you'll have in expenses next year, will you have enough expenses to absorb the additional 3,800 in scholarships or should you report it for 2024?

Even if you take the credit for tax year 2024 and have excess scholarship for 2025, usually the credit is more valuable than the tax the student may need to pay on the scholarship income. 

IRS Pub 970