Net Qualified Education expenses is zero but 1098-t box 1 is higher than box 5

Forum|Forum|4 years ago
March 26, 2022
1 reply
0 views

I have 2 kids in college my AGI is less than the income level for joint return. One gets the American credit and the other had Net Qualified education expense is zero yet they both have a higher amount paid 1098T box 1 than Box 5 for scholarships.

Why would it say that and not allow credit?

Best answer by Hal_Al

You've entered something wrong. Go back thru the whole education interview. If you can't find the error, delete the student and re-enter.

Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click delete next to the student's name. You'll then get the "Your Education Expenses Summary" screen again. Click the "Add a student" button.

Hal_AlAnswer

Employee

You've entered something wrong. Go back thru the whole education interview. If you can't find the error, delete the student and re-enter.

Hal_Al

Employee

You may not be limited to claiming only the difference between boxes 1 & 5, for the 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.

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.