Triggering AOTC for student on full scholarhip

[user17737503813]

I have spoken with 3 people on the phone and still can't solve this.

My oldest received a full scholarship including room and board, and the Box 5 is about 10,000 more than Box 1 on his 1098-T.  Last year it was more than that and there was no problem. 

After I upload the document and answer the questions the same way I did for the past 3 years, I receive a message that he does not qualify because someone else can claim him as a dependent (tech support has reviewed and deleted and re-added him several times and there is NOTHING that says someone else will be claiming him.) 

I know he has to allocate 4000 to income on his own tax return. I can't even get off the ground with mine.

My answers are

-Received a scholarship

-Full-time

-Not his first year

-AOTC claimed 3 years 

-Received 1098-T (Uploaded and verified numbers)

-At least half time

-No employer, GI bill or veterans funds

-No 2024 1098T with Box 7 checked

-No other financial aid

-I've tried running the question about room and board both with the 4000 and without and it doesn't matter

Message: 

It looks like XXXX doesn't qualify

Education credits

American Opportunity Credit and Lifetime Learning Credit

Here's why:

• Somebody else can claim XXXX as a dependent on their return
• There were no net qualified education expenses

The IRS says this is allowed so why doesn't Turbotax do it? The third person I spoke to was from expert and said the reason is the Box 5 exceeds Box 1 - which was true for a lot more last year, and also that does not matter the way I read IRS material.

I have about 10 hours into this one issue. Please help.

Edit: I'm looking for the workaround to allocate funds to taxable (I know I don't have the right words) as is done here. I just don't know what the numbers are for mine or where to enter them. 

Solved: Education Credits and Excess Scholarship Funds

[ThomasM125]

You would not normally qualify for an education credit if your scholarship income was more than your tuition expense. The reference to someone else claiming him as a dependent may just be telling you that is one reason he may not qualify, but the primary reason is the scholarship income paid for the tuition, so that portion of it is not taxable. So, you can't get an additional tax benefit by receiving an education credit.

[user17737503813]

Ok... So for the last year out of the 4 he reports the difference between those two amounts as taxable income, then unlike in previous years nobody takes the AOTC? He cannot as he is my dependent. 

It still doesn't make sense that he is showing as "someone else can claim him" when 3 reps have checked that he is entered appropriately as a dependent. 

[MarilynG1]

Edit your Dependent student in the Personal Info section.  If all appears correct, and you know you're not eligible for an Education Credit, you're not required to enter Form 1098-T into TurboTax, it is an informational document only.  You can delete the form from your return and keep it for your records. 

Any taxable scholarship income can be entered under Miscellaneous Income 1099-A, 1099-C > Other Reportable Income, although it is easier if you're able to enter it in the Education section and have TurboTax report the taxable scholarship income for you.  

Have you tried deleting/re-entering him in the Personal Info section?  Clear your Cache and Cookies after deleting, before re-entering? 

@user17737503813 

[user17737503813]

I keep seeing answers for the situation where Box 5 is larger than Box 1. It involves allocating an amount to the student as taxable. I am looking for the parent version of this student’s question.

https://ttlc.intuit.com/community/taxes/discussion/how-to-enter-this-in-turbotax-aoc-coordination-wi...

[NCperson]

Here is how it works - and it is tricky:

1) Student's scholarship income is ALWAYS taxable to the STUDENT and is reported on the STUDENT's tax return.  That is a fundamental to the whole issue.  Most don't realize that. 

2)  You must determine which of those scholarships are restricted in their use (normally to Tuition and Books) and which are unrestricted in their use (Pell grants is an example of an "unrestricted" scholarship). 

3) The RESTRICTED scholarship income MUST BE reduced by the QEE (Box 1, plus any other QEE, normally books purchased off campus and a computer).

4) the UNRESTRITCED scholarships CAN BE reduced by the remaining QEE, but it doesn't have to be. 

5) You can report $4,000 of the QEE that remains on the PARENT's tax return on a dummy 1098-T form.  That creates the basis of the AOTC tax credit. 

6) The remaining scholarship income, net of the remaining QEE, is reported on the STUDENT's tax return. If the student has no other income, there may not be a filing requirement in any event.  But be careful, as there are scenarios that create kiddie tax reporting 

Here is an example: 

7) Let's assume Box 1 is $10,000.  Let's assume that Box 5 is $15,000, $5,000 of which is restricted scholarships and $10,000 is unrestricted scholarships.

😎Since the RESTRICTED scholarships MUST BE reduced by the QEE, we are left with $5,000 in Box 1 and $10,000 in Box 5 for the student to report.   

9) $4000 of the remaining $5,000 is reported by the parents on a dummmy 1098-T on the PARENT's tax return.  That creates the basis of the AOTC tax credit on the parent's tax return. 

10) that leaves $1,000 of QEE for the student to net against the $10,000 that remainins in Box 5. 

11) The student would report $9,000 of scholarship income on the STUDENT's tax return (the net of the remaining scholarship less the remaining QEE).  But if the student has less than $6,750 in other non 1099-NEC income, then it doesn't matter since the student is unlikely to have a filing requirement in any event. 

Write the example out out on paper and you'll better understand how this works.  It is critical to determine which scholarships are unrestricted and which are restricted to make this work!