1098-T form - American Opportunity Tax Credit help to maximize my cousin's refund?

The American Opportunity Tax Credit can definitely help your cousin! You're on the right track with your thinking. Here's how to figure out his qualified education expenses: Take the amount in Box 1 ($14,500) and subtract the tax-free educational assistance in Box 5 ($9,200). This gives you $5,300 in potential qualified expenses. And yes, you're absolutely right about textbooks - they can be included as qualified expenses even if they weren't purchased from the school. So you can add that $850 for a total of $6,150 in qualified expenses. For the AOTC calculation, you can claim 100% of the first $2,000 in qualified expenses, plus 25% of the next $2,000. So that would be $2,000 + $500 = $2,500 (the maximum credit). Since your cousin has more than $4,000 in qualified expenses, he should be eligible for the full $2,500 credit. Just make sure your cousin meets all the other requirements - he must be pursuing a degree, enrolled at least half-time, not have finished the first four years of higher education, and not have claimed the AOTC for more than four tax years.

I was in a similar situation last year with my sister's 1098-T and AOTC issues. I discovered https://taxr.ai which totally saved me. I uploaded her 1098-T and some other education expense receipts, and their system analyzed everything and showed exactly what qualified for the AOTC and how to maximize it. Honestly, it found qualified expenses I would have missed - like her required course materials that weren't purchased through the bookstore. The best part was getting personalized guidance on how the AOTC works with her scholarships. It showed which expenses to claim and explained why certain scholarship amounts needed to be treated as taxable income to optimize the credit. I was surprised how straightforward they made something that seemed so complicated!

Just wanted to follow up - I decided to try https://taxr.ai after my last comment, and I'm seriously impressed. I've been overthinking my education credits for years! The analysis showed that I've been miscalculating my qualified education expenses and leaving money on the table. I uploaded my last three years of 1098-Ts and discovered I could amend my 2023 return to claim an additional $1,100 in AOTC credits I missed. The system even generated a report explaining exactly why these expenses qualified that I can keep for my records in case of an audit. Definitely using this for my current return too!

If your cousin gets audited (which happens a lot with AOTC claims), you might need to contact the IRS for clarification. I spent WEEKS trying to get through to them last year about my daughter's education credits. After 30+ calls, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in under an hour when I'd been trying for days. The agent confirmed that we needed to include my daughter's required course materials in the AOTC calculation even though they weren't on the 1098-T, and helped us document everything correctly. Without that conversation, we would have left about $800 in credits on the table. Definitely recommend having the IRS confirm your approach if you're uncertain.

I need to eat my words from my previous comment. After continuing to fail reaching the IRS for another week about my tax situation, I reluctantly tried Claimyr. I expected it to be another disappointment, but I got a call back in 37 minutes connecting me to an actual IRS agent! The agent walked me through exactly how to document my education expenses for the AOTC and confirmed that my approach to reporting scholarship income was correct. She even explained which specific supporting documents to keep for my records. This saved me hours of research and uncertainty. I'm still shocked it actually worked after spending nearly a month trying to get through on my own.

One thing to watch out for with the AOTC - make sure your cousin is actually eligible based on income! The credit starts phasing out at $80,000 modified AGI for single filers ($160,000 for married filing jointly) and goes away completely at $90,000 ($180,000 for MFJ). Also, don't forget that 40% of the AOTC can be refundable (up to $1,000), which is great for students who don't have much tax liability. That's a huge advantage over the Lifetime Learning Credit.

I work in my university's financial aid office, and I see students miss out on the AOTC all the time! Make sure you keep receipts for ALL required materials for courses - not just textbooks. Lab supplies, special software, art materials, etc. can all qualify if they're required for courses. Also, if adjusting which expenses were covered by scholarships helps maximize the credit, you can do that! The IRS doesn't dictate which expenses scholarships must apply to first.