1098- T how is this taxed and Educational expense

[Moonfamily3]

Hi,

We received at 1098-T for our daughter who just started college this fall. We are filing jointly and claiming her as a dependent.  She has no income. We are abit lost in this area and appreciate your help.  

1. Box 1 ( payments received)- $8576  is less than box 5. Scholarships or grants  -$9701. Difference of $1,125.

What type of payments are included in box 1 ( ie. both tutition and room and board?).

What is included in scholarships and grants? ) ie. is tutition waivers/exchange and outside scholarships included? 

2. Is this difference ($1,125)  taxable income on our joint return? If  so, where/how in turbo tax do you report it? 

3. Can we still claim any educational expenses for our daughter if box 5 is greater than box 1? 

There is section in turbo tax that asks if " there is any educational expenses to deduct-  expenses that was required by the school and those not required by school? We have expenses for books/computer equipment (not required by school , but she is CS major and some classes online ) for $2500.

4. Would we still be eligible for the AOTC?

Thanks in advance for your help.

[Vanessa A]

1. Box 1 ( payments received)- $8576  is less than box 5. Scholarships or grants  -$9701. Difference of $1,125.

What type of payments are included in box 1 ( ie. both tutition and room and board?).

What is included in scholarships and grants? ) ie. is tutition waivers/exchange and outside scholarships included?  Box 1 generally only includes tuition and fees, not room and board as room and board are not qualified educational expenses. You would need to contact your school to see what all is included in box 5. 

2. Is this difference ($1,125)  taxable income on our joint return? If  so, where/how in turbo tax do you report it? The taxable income is reported on your daughters return, not yours. 

3. Can we still claim any educational expenses for our daughter if box 5 is greater than box 1? Possibly, it depends on how you choose to allocate the scholarships/grants. See link below

4. Would we still be eligible for the AOTC? Depends on what the grants were used for.  If they were used for  room and board instead of tuition and fees, then yes, you could still get the AOTC for the amount that scholarships and grants did not pay. You have the option to allocate how the grants and scholarships were used. This will increase taxable income to your child, but depending on their tax situation, you may make out better overall. 

[Moonfamily3]

Abit confused .. would appreciate your help in clarifying.

1.Would my daughter report the differnce $1125 as  earned income on line 1 of the 1040 and claim a standard deduction or the entire 1098T? She has no other income. 

2. Could we still claim her as a dependent on our tax return ? She meets the criteria (18 in 2021)

3. She had expenses of $2600 for computer and books.  Could we claim this ?

3. The scholarship was used for tuition, except the $1125 that paid for room and board.  We have no Pell grants. Who would get this deduction ( my daughter or us?).I don't quite understand how to allocate to get maximum AOTC. Thanks!

[AmyC]

Education has a lot of loopholes that the IRS encourages. If your income allows you to claim the AOTC, I would encourage that. Thus: 

1. I would make her claim more to max out the AOTC.

2. Yes, she must be your dependent for you to claim the AOTC. I am sure you spent plenty on her!

3. Anything the school requires/ IRS allows. See Qualified Education Expenses - Internal Revenue Service. 

4. Whoever claims the student claims the credit.

 I am also going to recommend you look at another of my answers for help.

It is sounding like

Tuition, books, fees, etc is probably around $11,500

Scholarship $9700 but claim $2,200 went to room and board, if allowed.

This leaves $4k for AOTC on parents return.

[Moonfamily3]

Double checking  if I understand your reply and if I can do the following. Could split the scholarship income in Box 5 between my daughter and I? 

Example:

Facts: 1098 T slip: Box 1 -8576, Box 5 -9701

I file a separate return for my daughter. For my daughter's return I would enter in 1098 T, Box 5 $2200 scholarship on my daughter's tax return .  There is no taxable income/taxes. 

For our jt return  I would report 1098T: Box 1: 8576 and  in Box 5 ( $9701-2200=7501). Box 5 is now less than Box 1.

I would also claim her qaulified education expenses (books and materials) of $2600 and claim her as a dependent.   I claim the full american opportunity tax credit (per turbo tax).  Technically the scholarships are suppose to go to tuition, books and qualified expenses.  Checking if I am allowed to split the scholarship income and claim her expenses in this manner. 

Thanks for your help!