Books and required materials AOC with large scholarships

[Jack from Ohio]

Client has 1099-T with Scholarships and Grants approx $5k greater than box 2. Client also has books and related expenses for $1,500. Can she enter the books and related expenses on Form 8863 to claim the AOC?

[Janitor Bob]

sounds to me like there were no expenses (tuition, books, fees, etc) that were not covered by the scholarship amount....so I would say no.....taxpayer really in this case, had no out-of-pocket expenses.

Unless some or all of that additional scholarship money (the amount greater than tuition amount in box 2) went to pay for room & board. In that case, it is possible that the books/fees could qualify for AOC

[Kea]

Check how the extra dollars were used or not used. Could end up being line 7 income.

[Jack from Ohio]

I found this information. The expenses cannot be included because, in my case, the scholarships were greater than all the expenses.

Qualified Education Expenses

For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.

Related expenses. Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance.

However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution.

Adjustments to Qualified Education Expenses

If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.

Tax-free educational assistance. This includes:

• The tax-free parts of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions),
• Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions).
• Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ),
• Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and
• Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.