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electing to tax a portion of non taxable scholarships to allow client to take advantage of credit and reduce tax liability

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Level 1

Hi,

I have client who was kid with 1098-T of approx 4 k in box 1 and 10 k in box 5

in pub 970 and other sources. Taxpayer has the right to elect to use a portion of non taxable scholarships and make them taxable and non -qualified expenses,.  The rules get into alot of specifics about the particular scholarship guidelines allowing them to be used for strictly qualified or not etc..

My question is that lets say the can be allocated and you can use portion of the scholarship to be used for these non qualifying expenses.  the system shows you in student info worksheet part V  where you can allocate this i believe and even shows you the taxable part,  on line 9 but it doesn't tax it.  

Pub 970 says that this taxable portion ... should be included in income on line 1 ( pub 970 pg 6) 

Pro series does not seem to automatically tax this income.  I suppose you could put it on line 21 other income with description  " elected taxable portion of scholarships from 1098 t box 5 " .  But I am wondering if anybody has used this and what methodology have they used.

Thanks in advance  

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5 Replies 5
Highlighted
Level 12

It is working for me.

Have you checked Line 1 of the 1040?  Have you gone through the error check on the tax return?

 

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Highlighted
Level 1

Yes I have.. it is not adding it in there. Not sure why. But maybe something else in how I filled things out . Thanks for the reply I will test your printout on blank return

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Level 12

Wait a second ... it dawned on me what your problem might be.  The taxable income goes on the KID'S return, not the parents' return.

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Level 1

are you sure about that?   Does that mean that the parents cant report the income on their returns and take the credit on their returns?  Is this ONLY available to the student if someone tries to take advantage of the treatment of non taxable scholarships as taxable income and if so then is it true that they ( the student ) are NOT allowed a refundable credit if the student tries this.

 

 

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Level 12

The INCOME goes on the student's return.  It was the student that received it, so it does not go on the parents' return.

Assuming the parents are claiming the kid as a dependent, the parents claim the Educational Credit.