Declaring scholarships as income for American Opportunity Credit on taxes

[billcsho]

http://www.irs.gov/publications/p970/ch03.html
I use the online version of pub 970 for 2014. It is under the “Coordination with Pell Grants and other scholarships”.

The scholarship or fellowship grant must be one that may qualify as a tax-free scholarship under the rules discussed in chapter 1. Also, the scholarship or fellowship grant must be one that may (by its terms) be used for nonqualified expenses. Finally, the amount of the scholarship or fellowship grant that is applied to nonqualified expenses cannot exceed the amount of the student’s actual nonqualified expenses that are paid in the tax year. This amount may differ from the student’s living expenses estimated by the student’s school in figuring the official cost of attendance under student aid rules.

The Fact Sheet has been posted here many times:
http://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf