Tuition Exclusion

[Corduroy Frog]

Have encountered a 1098-T State U with $4700 "billed" to the student, and $3300 in "scholarships, grants, etc."

Let's assume the 1098-T is correct. [We all know better, but it simplifies the topic for purposes of discussion]

The student, however, is also on the faculty and spends classroom time as a full-time teacher with a masters degree and takes night courses to further his educational standing with State U.

The $3300 is totally tax exempt by virtue of IRC §117(d).

However, is he still entitled to $4700 for the Lifetime Learning Credit? At stake is $940 (20% of $4700).

[Lion]

Don't you have to subtract scholarships from qualified tuition?

[FEDUKE404]

Can't have both

Whether the "scholarship" is taxable or not is of little consequence.

If he incurred $4,700 of eligible education expenses, and for whatever reason $3,300 of that amount was funded from somewhere else, he obviously cannot claim any education credits on the full amount of qualified education expenses as shown on the infamous Form 1098-T.

Now what I have heard can occur is the "grad student" also "teaches" and receives income from his "work" that becomes a "scholarship" and NOT income. Althought I did not have to finalize the tax return related to that situation, I was aware of the apparently common practice and still have never quite figured out what was going on. IIRC, there was no W2/1099 issued for the "wages."

FE

[appelman]

Can apply 1400 to lifetime learning credit.

It would matter if the scholarship were all reported as taxable income, in which case the entire 4700 could be used for the credit. But that does not appear to be the situation here.