Tax question -- non-qualified educational expenses

Parent Cafe
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<p>Is anyone who has experience filling out taxes for college students willing to help me out on an issue I’m having?</p>

<p>It’s my understanding that scholarships granted for, or otherwise applied to Room&Board are taxable. So if for 2012, my college expenses were</p>

<p>Tuition and Fees $43109
R&B $13630</p>

<p>covered by</p>

<p>Scholarship $52450
Loans $4289</p>

<p>If I applied all of my scholarship to tuition and room&board, the difference of scholarship minus tuition and fees, in this case $52450 - $43109 = $9341, is counted as taxable income no different from my earned wages, correct? Also, for me my state of residence and my college’s state are the same, but for curiosity’s sake, in which state would the non-qualified scholarship proceeds count as income?</p>

<p>I appreciate any help you could offer.</p>

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<p>The way i read your post, you are correct, that $9k would appear on the taxable income line as ‘schol’ and you would pay taxes. </p>

<p>Regarding the state, my understanding is that those wages are taxable in the state of the university</p>

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<p>Thank you.</p>

<p>I’m also wondering–can I count my loans as having been spent on tuition and fees, enabling me to get the American Opportunity Credit? I am fairly sure that if neither my scholarship nor my loan distinguish between qualified and non-qualified expenses, i.e. they just as willingly cover my R&B as they cover tuition. </p>

<p>Taking the loan out against tuition would qualify me for the Credit but increase my income because more of the scholarship would be unqualified. Yet this would result in a lower net tax liability because the Credit is a reduction of taxes owed, as compared to a reduction of income which is more like a deduction. Is it possible for me to interpret the loan in this way?</p>

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<p>That depends. If someone else claims you as a dependent on their tax return, I do not believe you can take the AOC.</p>

<p>Check out publication 970 at irs.gov.</p>

<p>There are a lot of experts on the financial aid forum - <a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/&lt;/a&gt;&lt;/p&gt;

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<p>

</p>

<p>If you can be claimed as a dependent on your parents’ tax return, then you can’t take the credit. However, if you do report more of the grants/scholarships as income by applying them to non-QEE, your parents can take the AOC on amounts paid toward qualified expenses. Then you and your parents can work out a reimbursement for the extra taxes you paid. Your parents can use amounts paid with the loan as though they paid them.</p>

<p>Remember to include required books and supplies as qualified education expenses.</p>

<p>Only $4,000 of expenses paid is needed to get the maximum AOC of $2500, $1000 of which is refundable.</p>

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<p>Thank you both! Pub 970 is very helpful. There are some examples there that are nearly identical to my case.</p>

<p>I’m actually not claimed as a dependent on my parents’ return, as I’m financially independent.</p>