Why do I not qualify for Education Credits like I did in previous years?

[sazu123]

So I was a college student in 2023, who used the education tax credit (American opportunity credit) for the last 2 years and wanted to know why I didn't qualify for the 2023's tax return. My information stayed the same overall (no major changes in jobs, assets, etc) , My scholarships and grants covered slightly more than my tuition which wasn't an issue when qualifying for it in previous years. I also filed as an independent from 2021 so taxable income was from my part time jobs. 

What turbo tax tells me is:
Here is why you may not qualify:
There is no taxable income in your return
Scholarships, grants, and other tax free assistance exceed the education expenses
There were no net qualified education expenses

what qualifies as a net qualified education expense? Because I've inputted the same information in previous years and still qualified. In terms of taxable income, I've used a part-time job for one year, an internship for another year, and another part time job for this year. My scholarships/grants have always slightly exceeded my tuition cost but that can also be cause of loans, however it was not an issue either in previous years. and lastly the factor of someone claiming me as a dependent has never been an issue cause I've always filed my taxes independently. 

[MarilynG1]

The Education Credit is to help with your out-of-pocket Education Expenses (net qualified education expenses).  You must have had enough expenses over your Scholarship amount to qualify for AOC in the past. 

Make sure you entered all your expenses (not just Tuition).  Make sure the amounts in Box 1 and Box 5 on your 1098-T are correct.  Sometimes one or the other will have an amount for two semesters, the other for one.

Another option you can try is to make part of your Scholarship Taxable Income, so you can qualify for the AOC.  You will need to delete your current 1098-T entry to do this. 

Per Champ @Hal_Al:

"How to Enter taxable scholarship.

 Enter at Educational Expenses and Scholarships, under Deductions and credits (not the income section).

After answering no to having a 1098-T, answer yes to qualifying for an exception (that gets you to the entry screens). You will have to go thru the whole education interview to get to the scholarship screen. At the scholarship screen, enter the amount of the grant. When asked if any was used for room and board, answer yes. Then enter the amount you want to be taxable (usually all of it), in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put it on line 8r of Schedule 1 (this line is new for 2022-3).

If you do have a 1098-T, one of the follow-up questions will be do you have any scholarships not shown on the 1098-T. Enter the additional scholarship/stipend there.  

[Hal_Al]

"My scholarships/grants lightly exceed my tuition cost". 

That's a disqualifier because "Scholarships, grants, and other tax free assistance exceed the education expenses; so there were no net qualified education expenses".

If you've gotten the credit, in the past, it's because you entered additional qualified expenses (books, computer, other course materials) or you've declared some of your scholarship taxable. 

There is a tax “loop hole” available. 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 school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 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 $5000 of taxable scholarship income, instead of $6000.

The way you enter this in TurboTax (TT), when asked if any of the scholarship paid for room & board, in the interview, enter $6000 (in the 1st  example above).

To make some of the scholarship taxable (re-allocate some of the expenses), you must tell TT how much you want taxable by saying it was used for room &board. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B. Sample at

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

How old are you?

A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working (unless you are an orphan). You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit. 

You can still qualify for the non refundable portion, hence the comment "There is no taxable income in your return".