I am getting ready to pay our first college bill and trying to coordinate scholarships, 529, AOTC, taxes, etc.
My son received some scholarships. I was told by the school that the scholarships are applied to the overall bill, and that I can decide how to apply the scholarships to the items in the bill.
My understanding is that scholarships are tax-free for tuition, fees and books. However, they are taxable for R&B.
Our expenses after scholarships this semester will be about $3500. I could consider this to be part of R&B to reduce the amount of taxes.
However, I want to get the AOTC, which cannot be used for R&B.
If I consider the $3500 out-of-pocket to be a part of tuition to claim AOTC, scholarships will cover all of R&B.
Does this mean that the full amount of R&B will be taxable income? To the student?