Dependent's 1098-T Taxable income from scholarship

[Ahernandez86]

Hello and good evening!

I tried reading through several other questions to figure out my son's 1098-T but a little confused so I thought I would just ask.  Thank you for any help!

Box 1-$24,435

Box 5-$37,746

From what I understand as the "loophole" I would add the excess scholarship amount of $13,311 to my son's own tax return as taxable income and choose the option on my return on TT that I used a portion of scholarships and grants for non-qualified expenses (room and board etc).  Is this accurate?  Again, thank you for any help!  

[KrisD15]

No.

Your son received  37,746 in scholarships. 

24,435 tuition was paid to the school. 

That means your son would need to claim 13,311 as income and use all the expenses for the other 24,435.

If you want to use 4,000 of the expenses for the credit, your son can only use 20,435 expenses (you're taking 4,000)

Now he has 37,746 scholarships and only 20,435 tuition.  That means he claims 17,311.

If you want to use this method for the credit, 

YOU report 4,000 as tuition paid (1098-T Box 1) on your return.

Leave box 5 blank

THE STUDENT reports 17,311 scholarship only (1098-T Box 5) on their return and leaves Box 1 blank. 

[Anon_12]

Can you use this same example if box 5 is around $800 less than box 1 or only if box 5 is greater than box 1?

Also, in your example why would you not put down anything for box 1 on the student's tax return?

[AmyC]

The first step is to determine if you qualify for credit,  You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

• If you don't qualify, enter the 1098-T as it is on the student return, do not enter on parent's return.
• If you do qualify, take $4,000 for education expenses.  We can give you a long complicated process of entering both forms on your return but we have finally figured out a quick and easy shortcut.
  • For the parent, enter the 1098-T  with no scholarship income and just claim $4,000 of tuition needed.
  • For the child, enter the 1098-T- box 1 already had $4000 used so minus the $4000 from box 1 and fill in everything else.

Note, most scholarships are not restricted but if you have restricted scholarships that must be used for tuition, they have to be entered as such. 

See What You Need to Know about AOTC and LLC and how scholarships and tax credits interact.

[Edited 4/11/25 | 1:54 PST]

[NCperson]

@AmyC that only works if the scholarships are "unrestricted".  if Box 5 is only $800 more than  Box 1, there is not enough information to come to a conclusion that the parent can use $4000 for the AOTC credit. 

The Box 5 scholarships that are "restricted" MUST be netted against the related Box 1 expenses.

THEN, the remaining scholarships that are "unrestricted" CAN BE netted against the remaining Box 1 expenses.

Example: 

1) Box 1 = $10,000

2) Box 5 = Unrestricted Scholarships: $3000;  Restricted Scholarships: $8,000.

The Restricted Scholarships MUST be netted against the QEE (Box 1)

That means what remains is $2000 of QEE (box 1) and $3000 of scholarships (box 5). 

The parents could only claim $2000 of QEE for AOTC, leaving the child with $3000 of scholarship income to report.  So just because Box 5 exceeds Box 1 does not necessarily lead to a conclusion that the parents can use $4000 of QEE for AOTC. 

The Link to the IRS material (but who is going to take the time to read the linked PowerPoint?????) certainly explains this concept, but I do not see where your response highlights this for the reader.