1098-T and AOTC

Forum|Forum|7 years ago
February 19, 2019
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I am helping my niece and sister-in-law with taxes. My niece received her 1098-T from college and has more scholarships, etc than qualified expenses, so she will need to claim the excess as income on her return. However, she did pay tuition out of pocket in the summer of 2018 because not as much aid is available during the summer. The questions are: Would the out of pocket tuition cost be eligible for the AOTC and filed on her mom's return? Would the 1098-T information need to go on both of their returns? It will be entered on my nieces to claim excess scholarships and grants as income. When I enter it on her moms return, it indicates no eligibility for any education credits. How do we make this work correctly so that she can claim a credit for those tuition costs that my niece paid?

Best answer by BarbL

Could you go through your entry of the 1098-T on the parents' return? It sounds as if you marked the wrong box on the page asking "Was any of the student's financial aid already included in income?" This question is asking about a different type of scholarship, often reported on a W-2 or 1099-MISC. Respond No to that one, then keep clicking through.

You are looking for the question "Did student pay for Room and Board with a scholarship or grant?" This is where you select 'yes' and indicate the amount on the following page.

@gordda40 Our conversation was accidentally deleted. I've attached a screenshot. This should resolve things for you!

NCperson

Level 15

Whomever is listed as the recipient on the 1098-t needs to report it on their taxes

Certain expenses are not deductible in any event which is why the college did not list them in box 1

Please describe what was “out of pocket” during the summer that was not on the 1099-T

Also read the link below carefully
https://www.irs.gov/credits-deductions/individuals/aotc

BarbL

Level 7

The 1098-T causes a lot of confusion, but is really quite simple:

If a parent claims the child as their dependent, the parent will claim the 1098-T and education expenses, regardless who paid.
If the parent does not claim the child as their dependent, the student will claim the 1098-T and education expenses, regardless who paid.
If the scholarships, grants, and other aid (except loans) is more than the tuition, fees, books, and supplies, the student will claim the 1098-T and education expenses, and will claim the excess aid as taxable income.

Your situation is a bit more complicated, because of the summer tuition. Was that summer payment included on the 1098-T? If so, it has already been factored in and there is nothing else to claim or report.

In some situations, a student is allowed to allocate scholarships to living expenses (rather than tuition, fees, and course materials) and can then use amounts paid out of pocket to qualify for education credits. However, this depends upon the restrictions of the scholarship.

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gordda40Author

Level 2

I been watching this thread and want to add a strong word of caution.

the reason to use Turbo Tax (I think!) is that all the rules required to follow the tax rules are imbedded in the software. All you have to do is copy in the forms received and answer the questions posed honestly. That is the value TT brings and why millions purchase it and rely on it.

Having a child that goes to college within a household is just not a situation that is out of the TT norm - a lot of folks are in the same boat so the questions posed in this thread are similar to those that millions would otherwise be asking - because the situations is simply not that unusual - and inputting forms received without edits and answering questions posed in the step x step process cause you to comply with the tax laws.

So attempts to circumvent the questions or think you know more than the software is asking for trouble. Not suggesting that is occurring here but when i see statement about allocating living expenses or that there are forms missing it raises red flags for me and that the situation is being 'over thought'.

It also increases the risk of an IRS audit later because one believes they know more than the Intuit. that also will invalidate Turbo Tax's warrentee - they will pay the penalties if their software is wrong, but they won't pay if the forms are not copied as presented or the questions are not answered correctly.

for example what living expenses are you allocating and why? is that question posed by TT or are you rationalizing they can be deducted? read the IRS link below and the section I copied from that link related to expenses that do not qualify.

another red flag, "I had to add the AOTC on her form as well".... did answers to questions posed in TT cause that to occur or are you trying to circumvent the software because there is the thought that is the way to maximize the benefits?

I hope this comes across as simply advise and awareness and it doesn't offend anyone - that isn't my intent.

https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses

Expenses that Do Not Qualify

Even if you pay the following expenses to enroll or attend the school, the following are not qualified education expenses:

Room and board
Insurance
Medical expenses (including student health fees)
Transportation
Similar personal, living or family expenses

I followed the advice of the Tax Expert who graciously posted in regard to possibly allocating scholarship money not designated for tuition and fees to housing. This has increased my niece's taxable income, but also provided an opportunity to claim the AOTC on her mother's tax form. I am sorry, but I am not as familiar with how to do this on TurboTax as you and the other millions that you refer to apparently are. That was why I was asking-so that I was following the correct procedure. The IRS itself suggests the procedure of allocating scholarships or grants to non-qualified expenses that might be enable families to increase the amount of the AOTC in Chapter 2 of Publication 970. I am well aware of what non-qualified expenses would be and what QHEE are. I am simply looking for advice on how to do things the right way with the software to avoid any issues and to maximize the legal educational tax benefits.