Tax tip: Maximize AOTC even with grants/scholarships

[Pegasus]

I think many people miss the opportunity to maximize their AOTC credit when their student(s) receive significant grants/scholarships.  The IRS fully endorses the coordination of the credit with grants/scholarships and full details along with examples can be found in IRS publication 970.  Search the document for "coordination with Pell grants and other scholarships" to read it directly from the source. I suspect many more people will miss out starting this year since the 1098-T will be reporting amounts paid rather than amounts billed and the taxpayer will be too timid to claim more than the amount paid directly to the institution towards the AOTC.

Here's a couple snips from IRS pub 970:

You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student's gross income. . .consider including some or all of the scholarship or fellowship grant in the student's income in order to treat the included amount as paying nonqualified expenses instead of qualified education expenses.

 

[8filltheheart]

47 minutes ago, Pegasus said:

I think many people miss the opportunity to maximize their AOTC credit when their student(s) receive significant grants/scholarships.  The IRS fully endorses the coordination of the credit with grants/scholarships and full details along with examples can be found in IRS publication 970.  Search the document for "coordination with Pell grants and other scholarships" to read it directly from the source. I suspect many more people will miss out starting this year since the 1098-T will be reporting amounts paid rather than amounts billed and the taxpayer will be too timid to claim more than the amount paid directly to the institution towards the AOTC.

Here's a couple snips from IRS pub 970:

You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student's gross income. . .consider including some or all of the scholarship or fellowship grant in the student's income in order to treat the included amount as paying nonqualified expenses instead of qualified education expenses.

You can't do it in all circumstances. Scholarships that are labeled tuition scholarships cannot be manipulated that way.