Education Credit

[user17750138963]

Our son is attending college but we still claim him as a dependent.  I understand that we can claim the credit and I have his 1098-T.  Turbo Tax asks for tuition expenses from box 1 and scholarship amounts from box 5, but what if our son took out a student loan to cover some of the tuition expenses and our (me and spouse) was less than the difference between the tuition and scholarship amounts?  

[SharonD007]

Student loans still count as “you paid the tuition.” For education credits (like the American Opportunity Credit), the credit is based on qualified expenses minus scholarships. It does NOT matter if the tuition was paid with:

• cash
• your money
• student loans (very common).

So even if scholarships didn’t cover everything, and the rest was paid with student loans,  You can still claim the credit as long as:

• You claim your son as a dependent
• The expenses weren’t covered by tax-free scholarships.

Refer to the TurboTax Help articles Where do I enter Form 1098-T (Tuition Statement)?, Guide to Tax Form 1098-T: Tuition Statement and What Are Education Tax Credits? for additional information.

[user17750138963]

Appreciate the feedback, thanks.  But Turbotax is now telling me that my son doesn't qualify for the education credit.  I don't understand, as I went through the IRS worksheet to check eligibility and it indicated we'd be able to claim the American Opportunity Credit.  I'm not sure why Turbotax is saying we can't.  Our AGI (spouse and me) was roughly 163500, claimed son as a dependent, and had tuitions costs of roughty $4500.  Turbotax justification of saying why he's not eligible was that:

Here's why:
- Somebody else can claim Caleb as a dependent on their return
- There were no net qualified education expenses

Within Turbotax, when addressing the 1098-T, I did check the box for "I paid a different amount than shown in Box 1".  I assumed that to be the correct thing to do and that I needed to enter the Box 1 minus Box 5 amount there, but is that a correct assumption?  If I don't check that and just use the information from boxes 1 and 5 it makes a massive difference in my return.

[Vanessa A]

When you put a check mark in the "I paid a different amount than shown in Box 1"  That would be the amount you paid, not box 1 minus box 5.  Box 5 is still there so if your 1098-T has $10,000 and box 5 has $6,000, then you enter $4,000 for the corrected amount, it will deduct the $6,000 in box 5 from what you entered and leave you with no net qualified expenses.

What type of adjustment are you trying to make to what was paid in box 1?

As for somebody else can claim him as a dependent on their return...This sounds like you checked a box saying that someone else can claim him or will claim him as a dependent on their return. To fix this, you can go back to the personal info section and select the  pencil next to his name.  Walk through the questions to look for the one that asks if anyone else will be claiming him for the year. Change this answer to NO, unless of course someone else is claiming him such as his other parent. 

Because your income is slightly over $160,000, your credit will begin the phaseout.  The credit is fully eliminated at $180,000.

[user17750138963]

Thank you again for trying to help, but I'm still confused about the use of the 1098-T information.  I'm simply wondering if it's appropriate to be checking that box and entering a different value.  Since scholarships were involved and covered some of the costs in box 1 I assumed I needed to enter a different amount, so I checked the box and entered an amount that was equal to the amount that combined a student loan and out of pocket costs.  I'm wondering if my assumptions are correct and the typical reason a person would check the box for saying a different amount was paid, and if that amount is supposed to exclude scholarship amounts or if one can leave the box unchecked, even if scholarships covered some of the box 1 expenses.

[NCperson]

@user17750138963 -  I suspect you are overthinking this. Please post the amounts in Box 1 and Box 5 and I will explain.  

Also, a dependent is NOT eligible for AOTC; only the taxpayer is.  So YOU may be eligible for AOTC on your tax return, but your son is not on his tax return.... but that depends on what is in Box 1 and Box 5.  Post those numbers and I will explain how this works. 

[Vanessa A · Accepted solution]

No.  Having scholarships does not mean you should change the amount paid in  box 1.  

Generally that box should not be checked unless there is an error.  Box 1 is the tuition expenses.  So, if the tuition is $10,000, and the full amount was paid, whether it be by scholarship, loans, cash or an employer, the box should be $10,000.  TurboTax will automatically deduct any scholarships in box 5 from box 1 to calculate the education credits.

Generally this box would be changed if you paid tuition for a future year or prior year and it was not included in box 1.  It is mostly for timing issues of tuition paid. 

[user17750138963]

Box 1: 11839
Box 5: 7225

For what it's worth, box 7 is unchecked (for the jan-mar 2026 period), and box 8 IS checked (at least half-time).

And I understand that my son (the dependent) himself wouldn't be eligible but I'm not working on his return, but rather that of my own (+spouse, married/jointly). 

[NCperson]

@user17750138963 here is how it works.  It's rather simple.

The form is for informational purposes only.  It is based on the school's accounting system.

Box 5 is all the scholarships reported to the school that were used.  It is based on the school's accounting system.  In the rare case there are other scholarships that were paid directly to your son, that needs to be added.  

Box 1 is all the expenses that you ALREADY PAID that meet the definition of Qualified Educational Expenses (QEE).  The school has already figured this out for you.  Generally, it's tuition and books purchased through the school.  If you purchased anything else outside the school that would qualify (and that is typically books purchased via Amazon and the like), simply add it to the Box 1 total. 

That is it! Payments on loans or proceeds from loans are not QEE or scholarships.  That is based on the IRS definition of each category.   

YOUR AGI must be less than $180,000 to qualify and you will see up to $1500 on line 20 and you will see up to  $1,000 on line 29 of form 1040. 

And since Box 1 exceeds Box 5 by at least $4,000 in your case, adding more to Box 1 will not change the result.  The maximum tax credit of $2500 occurs when Box 1 minus Box 5 is $4,000.  A higher difference doesn't do anything.  Just post the Box 1 amount and the Box 5 amount you have on the form into Turbo Tax.   No need to do anything more. 

"out of pocket" costs are unlikley to meet the definition of QEE and are not elgible.

does that help? 

[user17750138963]

Thank you so much (Vanessa, you too) for the assistance and putting my mind at ease that I'm doing things right.