AOC from taxable scholarship

[Pacun]

Student got 4K scholarship to cover his tuition at a local university. 1098-T form reads: Scholarship $4K, Amount paid $4K, amount billed $4k.

Student has 0 income.

Parents make 60K and they support the student. Support for the student totaled $30K, which was paid fully by parents.

Parents qualify to claim student as a dependent and they want to get AOC.

You must make the scholarship taxable in order to claim AOC. On what return do you make it taxable?

Keep in mind that the scholarship was given to the smart student and not to the "smart" parents.

[Lion EA]

If the tuition was $4K and the scholarship was $4K and the bill of $4K was paid by the scholarship with no parental cash and the parents can benefit from AOC more than the student will lose by paying tax on income at his lower tax rate and IF the scholarship can be used for more than tuition, then you "use" some/all of the scholarship for room & board or whatever so it's taxable to the child. Then the parents take the AOC.

However, 1098-Ts are still unreliable. Use the bursar's statement. For instance, I've seen what you reported, but it meant that tuition was $8K with scholarship $4K so billed $4K. If the parents actually paid $4K toward tuition, you don't have to "move" any scholarship money around.