I am divorced and get to claim daughter every other year. She is a collage student. she has a scholarship but pays books and board. she has no job. what do i claim?

[Hal_Al · Accepted solution]

Yes. The education credit goes to the person claiming the student's exemption (dependent), even though the student paid for her own books.

Furthermore, there is a tax “loophole” available. The student reports all his/her scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parent   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 2. 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.