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Nancy in NH

H/S student took college course & taxes

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DD (a junior in high school) took a college course during the fall semester at a local CC.  I paid the cost of the course ($315), the cost of the course for students in the early college program.  We received a 1098-T that has in box 2 (billed) an amount of $687 and in box 5 (scholarships/grants) an amount of $372.  I was surprised to see that.  I figured that since the cost was $315, that's what would be in box 2.  I didn't realize that they apply the full cost of the course to the student account and then write off an amount as a grant.  That is really not the problem, but was a surprise to me.

 

My question is how to handle this for tax purposes.  From what I have gathered through research and reading through IRS Pub. 970, it seems we should be able to claim the Lifetime Learning Credit for the $315 (the actual amount we paid for the course).  But if I list the amounts above in TurboTax, it comes up with a message that the amount is taxable to my daughter and she needs to claim it on her taxes (she has no income, earned or unearned, so that wouldn't be the case).  I've got my other two kids' 1098-T info included (one for AOTC and one for LLC) which, since I went through the calculations manually before inputting in TT, I know is being calculated correctly.  I put DD's in and it doesn't seem to be correct.

 

I don't know if I'm answering all the interview questions correctly for her situation, and maybe this is where I need guidance.  I find some of the interview questions difficult to answer in this situation.  She isn't officially enrolled in a degree program, though the course could go towards a degree in the future, nor is she a first-year student (she's in high school).  Anyone here have experience with this?  Any suggestions on how to properly report this going through TT?

Edited by Nancy in NH

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I understand that if it was taxable income, what you linked would apply, but we paid $315 towards tuition for the course.  The so-called 'grant/scholarhip' that is included in box 5 does not exceed the stated 'billed' amount in box 2 and went towards a QEE (qualified education expense).  Scholarship/grant money that is used to pay QEE's is not taxable.

 

I'm just trying to figure out how to navigate the TurboTax interview process so that it figures it properly.

 

 

Yes, it's taxable to your daughter, but if she has no other income, it's not enough money for her to be required to file. Here's a related article from Turbotax.

 

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Interested in this tangentially as our Junior is taking a class and TurboTax says no credit can be claimed of any sort. So, those questions matter a lot on how it is handled!

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I understand that if it was taxable income, what you linked would apply, but we paid $315 towards tuition for the course.  The so-called 'grant/scholarhip' that is included in box 5 does not exceed the stated 'billed' amount in box 2 and went towards a QEE (qualified education expense).  Scholarship/grant money that is used to pay QEE's is not taxable.

 

I'm just trying to figure out how to navigate the TurboTax interview process so that it figures it properly.

 

Right. You list the amounts listed on your 1098 T. You get the deduction and the $372 is your daughter's unearned "taxable" income. You could technically file for her, but she wouldn't owe since her total income is under $1050. 

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Right. You list the amounts listed on your 1098 T. You get the deduction and the $372 is your daughter's unearned "taxable" income. You could technically file for her, but she wouldn't owe since her total income is under $1050. 

 

This makes no sense to me.  How is the $372 taxable income?  That is the amount of the 'grant' and it did not exceed the tuition of $687, nor did it go towards anything other than tuition.  Scholarships are not taxable if they are used to pay for qualified educational expenses.  How do you explain it being taxable?  It is the same in the case of my DS who paid tuition and received scholarships.  His is figuring correctly in TurboTax; hers is not.  I believe it has something to do with the interview process and the fact that I'm answering the questions differently for her, a high school student taking a college class, rather than for a full-time undergrad student.  

 

IRS Pub. 970 states (bolded is the IRS's not mine):

 

"A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. 

 

A scholarship or fellowship grant is tax free only to the extent:

- It doesn't exceed your qualified education expenses; 

- It isn't designated or earmarked for other purposes (such as room and board), and doesn't require (by its terms) that it can't be used for qualified education expenses; and

- It doesn't represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later. 

 

Candidate for a degree. You are a candidate for a degree if you:

1. Attend a primary or secondary school or are pursuing a degree at a college or university; or

2. Attend an educational institution that:

a. Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

b. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency."

 

I do understand that scholarships become taxable if they are used for non-QEE's, such as room and board.  This is not true in her case.  She passes the 'candidate for a degree' requirement and her grant/scholarship does not exceed her QEE nor was there any stipulation it not be used for QEE, which wouldn't make sense because it's just a tuition reduction for high school students attending the early college program.

 

If anyone else has any suggestions about entering this in TurboTax, I'd appreciate knowing how you got through the interview process.  I am pretty certain I understand the tax reporting on this, just not how to get TT to handle it properly.

Edited by Nancy in NH

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Sorry, I misread--I initially thought you were entering the $315 and not the full $687, so in that case you're right. I believe then that it's your answer to whether she is a candidate for a degree program that's flagging this. Your definition of whether she is a candidate for a degree program sounds stricter than what the code says...#1 and #2 in this next part both make me think you should say she's a candidate for a degree program:

 

Candidate for a degree. You are a candidate for a degree if you:

1. Attend a primary or secondary school or are pursuing a degree at a college or university; or

2. Attend an educational institution that:

a. Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

b. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency."

 

She IS attending a secondary school--your homeschool. But, even if DE courses at a local college make that not apply (which wouldn't make sense to me...), #2 seems to fit--I'm assuming that she is attending an educational institution that meets those requirements. It doesn't say that she has to be working towards her bachelor's or a trade program right now--it says that the institution has to provide a program that is acceptable towards that. 

 

Does that help?

 

 

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Sorry, I misread--I initially thought you were entering the $315 and not the full $687, so in that case you're right. I believe then that it's your answer to whether she is a candidate for a degree program that's flagging this. Your definition of whether she is a candidate for a degree program sounds stricter than what the code says...#1 and #2 in this next part both make me think you should say she's a candidate for a degree program:

 

 

She IS attending a secondary school--your homeschool. But, even if DE courses at a local college make that not apply (which wouldn't make sense to me...), #2 seems to fit--I'm assuming that she is attending an educational institution that meets those requirements. It doesn't say that she has to be working towards her bachelor's or a trade program right now--it says that the institution has to provide a program that is acceptable towards that. 

 

Does that help?

 

Yes, thank you.  You are right about what has been holding me up.  And no worries--I was confused and thinking I hadn't gotten my point across very well.  Now that you reaffirm what I believed I was interpreting correctly, it does just seem a matter of answering the questions about a degree program to suit the IRS rules, and not worry about how it is specifically worded in TurboTax.  I appreciate you walking through this with me! I tend to do this stuff late at night...  The thought process becomes so much clearer after a bit of sleep!

 

Again--thanks!  Taxes = :confused1: +  :scared: +  :eek: +  :ack2:

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