Question

I have a 1098-T from my child’s college. It reports her tuition and fees, scholarships, and grants. She also has student loans. To claim the American Opportunity Credit, can we apply the loan to the tuition and fees first?

Answer

It’s possible that you can still claim the American Opportunity Credit. It depends if the terms of the scholarship or fellowship restrict the use of the money. Usually, you’ll need to apply the scholarships first.

In this case, you’ll need to:

  1. Start with the amount of your qualified educational expenses for each academic period.
  2. Reduce that amount by the amount of scholarship or fellowship allocable to that academic period.
  3. Use any remaining qualified expenses toward the American Opportunity Credit. You’ll do this regardless of whether you paid for the expenses with loans or out of pocket.

If you apply your loans to your tuition and fees before the scholarships, you’ll need to include the scholarships in your gross income. You can do this if:

  • The scholarship or fellowship (or any part of it) must be applied to expenses (like room and board) other than qualified education expenses.
  • The scholarship or fellowship (or any part of it) can be applied to expenses other than qualified education expenses.

Related Topics

Related Resources

Claiming Child And Dependent Care Credits

Can you claim expenses for a disabled adult dependent? Learn more from the tax experts at H&R Block.

Wait A Minute… Do I Need to File a Tax Return?

Do you need to file taxes? Find out if the IRS requires you to file a tax return with the experts at H&R Block.

Self-Employment Tax Deductions

Are you eligible for self-employment tax deductions? Learn how to deduct health insurance and other expenses, and get tax answers at H&R Block.

Store or Shred? “How Long Should I Keep Tax Records?”

Learn the ins and outs of keeping tax returns and related records with the experts at H&R Block. We explain the three year rule and any exceptions to it.