Discussion:Pell Grant and electing out of exclusion

From what I have seen it is a very rare case whereas the student has any idea where the scholarships or grants went or what they were used for. Although in most cases it would probably go thru the school and be used to pay tuition and fees. I may be off base but that is how I understand these situations.

For example: 3,400 in qualified expenses, 3,700 in grants. 4,200 in total payments to school. 4,200 minus 3,700 equals 500. Add to income $500 and got a $500 education credit. Had question about example I was following on how to add income to 1040.

Thanks so much for all your help.

In the example given that is what was done.

Also, Pell Grants and Other Title IV need based grats are treated as scholarships for this purpose. Right in the Pb 970.

This technique works especially well when somone qualifies for the hope credit. Rather than reduce the tuition by the scholarship you report the scholarship as taxable and take the full hope credit. Big tax savings. For us in California it can add a little to the state tax since we don't have an ed credit but this is usually made up with the federal tax savings. Taking it one step further, use the cost of books to reduce the taxable scholarship amount.

EZTAX .. Rather than reduce the tuition by the scholarship, just report the scholarship as taxable. If intructions, pubs are to be taken seriously they do seem to make it clear that one cannot just arbritrarily do this. They do seem to indicate that one could possibly do this if the scholarship / grant is unrestricted and could be used for any educational expense or purpose. I personally have never met a student that could verify in any way just exactly what the terms of his or her scholarship were. I take that back I met one 4-5 years ago.

Riley2 - From 117 - "The term qualified scholarship means any amount received by

     an individual as a scholarship or fellowship grant to the extent
     the individual establishes that, in accordance with the
     conditions of the grant, such amount was used for qualified
     tuition and related expenses."  

So if the amount can be and is used for educational expenses other than tution then it is not a "qualifed scholarship".

MTX's initial example was to get the ed credit for the parent. This could also be done to get a better education credit on the students return. $2000 pd for tuition, $2,000 scholarship used for room and board. Report $2,000 as taxable scholarship and use tuition for hope credit.

Once again I understand that it really comes down to the terms/conditions of the grant which might be hard to find.

I would change my answer if the student is not a candidate for a degree or if he is required, as a condtion of the Pell Grant, to render services.

(As an aside, I always get a kick out of the times where we're trying to increase income. Damn refundable credits destroying the basic rules of logic.)

This whole area is turning out to be a can of worms.

"the law and common sense rarely intersect." Ain't that the truth!

Almost lost client last year because of this tuition maze and he is back this year. Here we go again! He has two kids in school with lots of scholarships, some qualified and some not. And then there is the cash basis to further confuse the issue of when the tuition can actually be deducted. The 1098-T is not on the cash basis. One of his FAFSAs kicked out last year because of the amount we elected to report as taxable on dependent's return. I am getting exasperated already!

I'm sure this wasn't what Congress intended.

I saw that in the other thread on this subject. That's good news for my client. Thanks for your help, and your help in general. This forum is an amazing resource, especially with the access to the Code and Regs that I can't really find anywhere else. Even when I give up on finding something here and Google it, half the time the top hits are to this site anyway.