American opportunity credit

[tax115]

Hello, turbo tax is telling me I don’t qualify for the American opportunity credit. I am filing Married Filing Jointly, have two full time college students who are still dependents (as well as two younger dependents), and make under the income limit. We got this credit last year when we only had one college student. Any ideas?

My college students have lots of scholarships that cover all of tuition and some is used for room and board- is that something that matters here?

[Vanessa A]

Yes.  If your students qualifying education expenses were completely paid by scholarships, then you would not be able to claim a credit as you did not pay any of the eligible education expenses.

In order to claim an education credit, some of the education expenses would have had to be paid by you, your dependent or through loans.  

[tax115]

Both of them paid some of the college bill that was not covered by scholarships or loans. They are unable to claim the credit because they are dependents. So I believe this makes us eligible to claim the credit?

[KrisD15]

Yes, if they are your dependents, you claim all the expenses, no matter who paid. 

You cannot claim expenses paid by tax-free scholarships or Grants.

If there is taxable scholarship income, the student claims that income. If there is an Education Credit, you get the credit. 

Room and Board does not count as education expenses towards a credit.

Room and Board expense can only be used to offset a 529 distribution on Form 1099-Q.

Scholarships that are used to pay Room and Board are taxable

Scholarships that are used to pay Tuition, Fees, Books and Supplies are NOT taxable

Pub 970 has some great examples and explanations