I’ve rounded the numbers for easier calculations.
Tuition and fees on Bursar’s Statement: $4200
Paid with Pell Grant according to Bursar’s Statement: $1150
Paid with Sub Loan according to Bursar’s Statement: $2700
Paid with Unsub Loan according to Bursar’s Statement: $350
Kid lived off campus.
What can be claimed here? None of it? Whatever was paid with the loan? The loan plus the Pell if the kid is willing to be taxed on the Pell?
The QEE would be the tuition and fees (plus you can add books to that). QEE doesn’t change by how you pay the bill. Paying with loans is the same as paying with cash.
If you are looking for the AOTC, you have to subtract out the Pell grant, so you paid $3050 in QEE (plus books).
Thanks! That’s what I was thinking.
No, you do not have to subtract out the Pell grant! Simply use that to pay for the student’s off-campus room & board. That means the Pell grant would be treated as taxable (rather than tax-free) income for the student, but whether he or she would actually have to pay tax on it would depend on his or her total taxable income for the year.
If the answer is yes, then you’ll have to crunch the numbers to find out whether your savings are better (1) paying the additional tax and claiming the full AOTC or (2) not paying the tax and just forfeiting that portion of the AOTC.
The first $2000 of QEE paid results dollar for dollar in a $2000 credit for the AOTC. The last $2000 of QEE paid results in $500 of credit or 25 cents on the dollar. So you have to determine if $4000 - $3050 - books and supplies times .25 is worth having your student include that amount in their income. For example if books were $500 then you’d be looking at having the student include $450 of the Pell in their income so you could get $112.50 more in credit.