Aotc and excess scholarship money

Forum|Forum|2 years ago
April 18, 2023
2 replies
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My grandson has 4,700 in box 5. 3,000 in box 1 of his 109-T. If he declares $1,700 as taxable income does that free me up to use my out of pocket qualified education expenses of $1,800 on the AOTC of my return since he’s my dependent?

AmyC

Employee

1. $1,700 scholarship income is probably not the best option in the long run.

2. Same for education credit, more is usually better.

Scenarios:

1098-T box 1 is $3,000 and scholarship income in box 5 of $4,700.

The AOTC is good for 4 years and to get the maximum credit, you would need $4,000 of expenses. You only have $3,000 showing as tuition for the AOTC and the student would need to claim the entire scholarship.

If the numbers are reversed and box 1 is actually $4,700 then you would claim $700 of scholarship went to tuition and the rest is income to the student, $2,300. This allows $4,000 of tuition to be claimed for the AOTC. This is all provided there are no stipulations with the scholarship income. If so, those must be followed.

For more variations and references, please look at another of my answers for help.

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Hal_Al

Employee

Q. My grandson has 4,700 in box 5. 3,000 in box 1 of his 109-T. If he declares $1,700 as taxable income does that free me up to use my out of pocket qualified education expenses of $1,800 on the AOTC of my return since he’s my dependent?

A. Yes, but not exactly.

He needs to declare the entire $4700 as taxable income. That frees up $3000 (plus any books, computer or other course materials) of qualified education expenses for the AOTC on your return since he’s your dependent.

I think the math does work in your favor. $3000 of expenses will get you $2250 AOTC (compared to $2500 maximum AOTC)). He may actually pay no tax on the $4700, depending on his other income.