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February 18, 2022
Question

I didn't get a 1098-T because I rec'd Pell grants and covid grants. How do I enter this info so I can get the Hope or American Opportunity Credit?

  • February 18, 2022
  • 1 reply
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I am under 24, live with my parents but they are choosing not to claim me as a dependent.

1 reply

Hal_Al
Employee
February 19, 2022

You cannot get the refundable portion of the  American Opportunity Credit if your parents CAN claim you as a dependent, whether they actually do or not.  If you have a tax liability, you may claim the credit to reduce that tax.

 

When asked if you got a 1098-T say no.  But then indicate that you qualify for an exception.  Follow the interview and  enter your numbers.  If your tuition, fees, books and computer cost  exceed your Pell grants and covid grants, you will get a credit (the Hope credit expired about 2005). If you grants exceed your expenses, you will have to declare some of the scholarship taxable to claim a credit.  

 

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 (Pell grants do not have this restriction).

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, instead of $6000.

 

In the 2nd example (with qualified book and computer expenses), when asked how much of the scholarship was used for room & board, enter $5000.