Can entire scholarship be claimed as taxable income to receieve american opportunity credit?

So on 1098-t, box-1 qualified tuition and related expenses are only $2835 and box 5 - scholarship and grant the amount is $4393

I found that if we use entire scholarship of $4393 as taxable income ..student is eligible for American opportunity tax credit and that reduces her tax...actually getting a refund.

So is it legal to use entire scholarship as taxable income (i.e. for room and board) even though technically student might have paid $2835 (tuition fees) from this scholarship and rest was used for personal expenses.

272

Level 15

Feb 24, 2020 9:40:28 AM

Not only is that legal it is highly encouraged ... it is a win win for the parents and the student. And you only need to make $4000 taxable for the max AOC credit.

Level 3

Feb 24, 2020 9:52:07 AM

Thanks for quick response...

I understand that for full AO tax credit one needs to declare only 4000$ as taxable income but I found that if we claim entire $4393 as taxable income total AO is $884 and earned income credit is $336 but if we choose only $4000..total AO credit is $844 and eic is $367

So total refund is not a big difference ..in case of $4393 it is $191 and in case of $4000 it is $182

So what is your suggestion ?

should he choose entire $4393 or just $4000?

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Can entire scholarship be claimed as taxable income to receieve american opportunity credit?