Q1: Yes, you can report this as VA assistance, as it is not taxable.
Q2: There should be one box that asks how much of Box 5 is VA assistance, you would claim the entire amount if it was all from the
Armed Forces Health Professions Scholarship. (there is another screen that asks about tax-free assistance received that was not reported on the 1098-T, you would not add anything here)
Q3: No, if the tuition was paid for with the scholarship, the expenses cannot be used towards the education credits. Furthermore, it would appear that the 1098-T may have shown amounts billed on the 2016 1098-T and that the scholarship then paid those expenses in 2017. If this is the case, you need to make sure you did not use those expenses in 2016 to obtain an education credit. If you did, you will need to "recapture the credit". This means you need to re-calculate your 2016 tax return and pay any tax that is due relating to the credit you received for tax year 2016.
ADDITIONALLY, if the scholarship paid in 2017, but it was billed in 2016, use the "What if this is not what was paid?" link under Box 2 on the 1098-T screen and report what was paid, including the scholarship that posted late.
According to the IRS:
"You don't have to treat as payment for services the part of
any scholarship or fellowship grant that represents payment for teaching,
research, or other services if you receive the amount under:
The National Health Service Corps Scholarship Program,
The Armed Forces Health Professions Scholarship and
Financial Assistance Program, or
A comprehensive student work-learning-service "
"Credit recapture.
If any tax-free educational
assistance for the qualified education expenses paid in 2016, or any refund of
your qualified education expenses paid in 2016, is received after you file your
2016 income tax return, you must recapture (repay) any excess credit. You do
this by refiguring the amount of your adjusted qualified education expenses for
2016 by reducing the expenses by the amount of the refund or tax-free
educational assistance. You then refigure your education credit(s) for 2016 and
figure the amount by which your 2016 tax liability would have increased if you
claimed the refigured credit(s). Include that amount as an additional tax for
the year the re-fund or tax-free assistance was received."
CLICK
HERE for IRS Pub 970 Education Credits
CLICK
HERE for TurboTax information on Education Credits
