Discussion:AOC / Taxable Grant Flexibility

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Discussion Forum Index --> Advanced Tax Questions --> AOC / Taxable Grant Flexibility


Discussion Forum Index --> Tax Questions --> AOC / Taxable Grant Flexibility

Mikemctx (talk|edits) said:

5 February 2012
A student (who can't be claimed as a dependent by anyone else) receives a 1098T showing $10,000 in grants and $7,000 in tuition. Student pays $800 for required books.

Solution 1: Taxable amount of grant = $10,000 (grant) - $7,000 (tuition) - $800 (required books) = $2200. No American Opportunity Credit.

Solution 2: Taxable amount of grant = $10,000 (grant) - $7,000 (tuition) = $3,000. American Opportunity Credit for $800 for required books.

Solution 2 provides a greater benefit to the taxpayer. Any problem with Solution 2?

[For reference terms of grant say that it will be used first to pay tuition. Balance of funds provided to student to spend at his discretion on items including room, board, rent, food, books, supplies, and clothing.]

Thanks!

EZTAX (talk|edits) said:

5 February 2012
We have had several discussions about this. Since the grant can be used on room and board solution 2 is ok.

Rupert (talk|edits) said:

5 February 2012
Solution 2 is correct. Page 11 of 2010 Pub 970 says:
Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student’s tax return in the following situations.
- The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
- The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).

There is also an example of this scenario in the Publication.

Ddoshan (talk|edits) said:

5 February 2012
My question would be how did you actually find out about the terms of the Grant. In the years since the education credit came into existence I have yet to have anyone able to furnish me with any such information .. take that back 1 person could.

Is this something you or me a tax pro can find out somehow on our own from some source. If so, I am willing and would like to learn how to find it out.

Mikemctx (talk|edits) said:

5 February 2012
Thanks EZTAX & Rupert.

Ddoshan: In this case the grants were Pell Grants and Cal Grants (from the State of California). A google search provided brochures for each program that indicated that the grants would be used first to pay tuition (& room & board if provided by institution) and the balance provided to the student to spend at his discretion for other room & board, rent, books, supplies, and clothing. While maybe not as good as a legal document the brochure seems to be clearly show the intent of the grants. In practice the student actually received the funds (after the tuition was paid) on a debit card that he/she can spend at their discretion

Ddoshan (talk|edits) said:

5 February 2012
Not doubting what you say. I have looked several times in the past and present about documentation etc. on the use or purpose of various grants and have yet to find anything particularly enlightening. I find this whole Education Credit thing to be a mess. Personally I just can't see taking any AOC credit when qualified expenses including required course materials amount to 5K and grants etc. amount to say 8K. Maybe I am wrong but just can't see it any other way unless a client can furnish me with a detailed analysis of just exactly what went on. Suspect very few ever could. I am not going to allocate things any other way.

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