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March 13, 2021
Question

1098-T - My daughter received more in scholarships than in tuition paid

  • March 13, 2021
  • 1 reply
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My daughter's 1098T shows that she received more in scholarships than paid in tuition.   The tuition, room and board, books, etc are all on the same account.  So, how would I answer the question if any of the scholarship money was used to pay for Room and Board or other expenses?    Would I put that all of the scholarship money was used toward tuition and the remainder toward room and board?  Or should I say all of her scholarship was used toward Room and Board?

1 reply

Hal_Al
Employee
March 13, 2021

TurboTax automatically treats the difference between boxes 5 and 1 as taxable income (if box 5 is larger). You do not need to tell it how much was used for room and board, unless you want to make more of it taxable (see "loop hole" below). You do want to enter book and computer expenses, as these may help reduce how much of the scholarship is taxable.

 

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) 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 1. 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.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income.