Education (reduction of scholarships or grants)

[ILLMAS]

I am looking at 2012 Quickfinder under education tax credits and I am seeing that total qualfied education expenses (box 1 or box 2) has to be reduced by box 5. So I have this situation, TP dependent recieved a 1098-T with $5000 on box 2, and $9000 on Box 5, so if I reduce from box 5, I come up with a negative $4000 which doesn't make sense, but I am assuming they don't qualify for the credit? I would appreciated if someone can shine so light on this.

Thanks

MAS

[grandmabee]

they don't qualify for the education credit and they may have taxable income from scholarship. You need to find out how much paid for books

[ILLMAS]

Ok, I will ask if it was a Pell Grant, which will be repaid back afterward, in case it was then it's not a problem, just to report box 2. Also, for example if the student recieved a scholarship, I would need to reduce it from Box 1 or 2 or I can report the scholarship as income on the parents tax return and fully report Box 1 or 2?

[NECPA in NEBRASKA]

A Pell Grant should not need to be paid back unless they fail the classes. They may have received money for other expenses and that would be taxable.

[Jack from Ohio]

No credit. Not even for books.

[Lion EA]

If taxable income from a scholarship, goes on STUDENT'S return.

Don't use Box 1 or Box 2. Use what your client actually spent on qualified educational expenses during 2012. But, if a scholarship covered all qualified expenses, then there's little else to use for a credit or deduction.