Scholarships and Education Credit Expenses Practice Question
Work the complete fact pattern before revealing the explanation. This question is adapted from the IRS public sample set for the current exam law period.
A taxpayer claims a full-time college student under age 24 as a dependent. Tuition is $8,000, room and board is $4,000, and the student receives a $5,000 tuition-only scholarship plus a $2,500 scholarship usable for any college expense. The taxpayer pays the remaining $4,500. Which statement is correct?
- A
The student claims the American Opportunity credit for $3,000 when reporting the additional $2,500 scholarship as income
- B
The taxpayer claims the American Opportunity credit for $3,000 when the student reports the additional $2,500 scholarship as income
Correct answer - C
The taxpayer claims the credit for $3,000 and neither reports the additional scholarship as income
- D
The taxpayer claims the credit for $3,000 and reports the additional scholarship as income
The taxpayer claims the American Opportunity credit for $3,000 when the student reports the additional $2,500 scholarship as income
Because the student is claimed as a dependent, the taxpayer claims the credit. Treating the flexible scholarship as taxable can leave $3,000 of qualified tuition for the credit.
Transfer the reasoning, not the wording.
Restate the tested rule without the answer choices. Then change one decisive fact and explain which option would need to change. That short exercise makes the explanation retrievable instead of merely familiar.
Official sample source
PassFast adapted this public IRS sample for web practice and added the concise explanation above.