Florida PrePaid and Florida BrightFuture scholarships confusion

[stacey9554]

My son is a Freshman at a Florida University.  He has Florida Prepaid tuition and 100% Bright Futures. He received a 1099-Q for the prepaid tuition and he received a 1098-T for the BrightFutures scholarship. Between the prepaid tuition and Bright Futures those paid for all of his tuition and housing.  We took out a separate loan to pay for his books, food, and other misc expenses that came up.

I am claiming him as a dependent on my 2019 taxes.  He had a part time job and will be submitting his taxes to cover what he earned last year.

On his 1098-T box 1 was greater than box 5.  (box 5 matched what he received for the scholarship) box one was for qualified education expenses.  I was assuming that the difference between box 5 and box 1 would be considered as taxable income.   

I tried a 2 things: 

1.)In the screens that handle the 1098-T form I took the difference between box 1 and box 5 and considered as income used towards housing (not qualifying educational expenses)...then turbo tax told me my son had to add the same amount on his form as income.  I did that on his taxes.  Doing this increased my tax refund by $335 but didn't changes his. 

2.) The 2nd thing I did was consider my whole bright future scholarship $3,490 as being used for housing (non qualifying education expenses).  Again here Turbo Tax told me the my son had to add the same 3,490 to his taxes.  Doing this increase my tax refund by $2,100 but didn't change his.  Doing it this way makes more sense since my Prepaid tuition would have paid for all his tuition and the bright futures would have paid for all this housing.  (even though the 1098-T box 1 and box 5 didn't reflect that)

The 2nd way take more advantage of the AOC.

Am I right in how i did the 2nd attempt above?

[KrisD15]

If what you say is true, box 1 is greater than box 5, there was less scholarship than tuition and fees reported on the 1098-T, so that would not indicated taxable income (at that point). 

Yes, if the scholarships are not restricted (and they usually are not) it can be applied to room and board or other expenses which would be taxable for the student, but could free up expenses for a credit. 

The American Opportunity Tax Credit maxes out with 4,000 expenses, so using any more than that is silly. 

Below is a PowerPoint from the IRS which addresses this very thing. 

IRS PowerPoint

[stacey9554]

KrisD15 - Thank You...good lord I was looking at all this stuff for 5 hours yesterday and became cross-eyed...I meant to say my son's Box 1 was less than Box 5.  So the amount of the scholarship was more than what his University put in box 1.  It sounds like the way I have the 1098-T entered gives us the most refund as the AOC rules allow.

I noticed that the money from the 1099-Q is listed under misc expenses.  This is for the Florida Prepaid Tuition.  Does that have any influence in what I entered for the 1098-T?

[DawnC]

The 1099-Q money can be used for miscellaneous expenses.   You are claiming him and the allowable amount of his education expenses that will allow you to maximize the American Opportunity Credit on your return.  He will claim any taxable income (scholarships in excess of qualified expenses) on his return.   As Kris stated above, the max credit for the American Opportunity Credit comes from claiming up to $4K of qualified expenses.   Only report expenses for which no tax benefits have been received for.  

If the 1099-Q distribution is not taxed, it is not reported. The program uses the 1099-Q and the expenses you enter to determine if there is any taxable income you need to report. 

According to the IRS:

"Generally, distributions are tax-free if they aren't more than the beneficiary's adjusted qualified education expenses for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.”

CLICK HERE for IRS Pub 970 Education Credits

The amount of scholarships he received in excess of the tuition and qualified education expenses is reported as income on his return.   Then those amounts become eligible for the education credit on your return.