From my understanding, if the scholarship does not have restrictions, you can declare it as income and take the American Opportunity Credit. For example, if you declare $1000 of scholarship money as income, you can get a tax credit of $1000 instead of a deduction for tuition. A deduction may only translate to $100-$150 of less tax if your marginal tax rate is 10-15%.
My $30,000 scholarship covered the entire cost of attendance. The maximum amount scholarships can cover is the cost of attendance. Am I still eligible to declare part of my scholarship as income to take the American Opportunity Credit? On my taxes, the taxable part of my scholarship would be higher than my school's budget for non-tuition expenses (only non-tuition expenses are taxable). However, it is only a budget and the scholarship does not restrict where the money goes (if I paid more tuition than I owe, I would get a bigger refund check from the financial aid office after the scholarship sends the money).
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