Can I claim AOTC with a full tuition scholarship? Need advice for amending returns

You're definitely asking the right questions here! The AOTC can be worth up to $2,500 per year, so it's worth looking into for those prior years. Here's what you need to know: Yes, you can actually choose to treat some of your scholarship as taxable income in order to claim the AOTC. The IRS allows you to allocate your scholarship funds between qualified expenses (tax-free) and living expenses (taxable). By choosing to treat some scholarship money as taxable income that went toward living expenses, you can then claim that you paid tuition "out of pocket." For your situation, you would report the amount you want to treat as taxable on your tax return. Then you can claim that same amount as qualified education expenses paid by you for AOTC purposes. You'd need to file Form 8863 with your amended returns. Just remember there are income limits for the AOTC and you must have been enrolled at least half-time in a degree program. The credit phases out for single filers with modified AGI between $80,000 and $90,000.

I went through this exact situation last year and used taxr.ai (https://taxr.ai) to help me figure it out. My scholarship situation was super complicated with multiple awards covering different things, and I was confused about how to allocate them properly for the AOTC. The tool analyzed my 1098-T forms, scholarship award letters, and previous returns, then showed me exactly how to allocate my scholarship funds to maximize my AOTC benefit while staying compliant. What's cool is it'll check if you're actually eligible for all three years you want to amend (there's a 4-year lifetime limit on AOTC). In my case, I was able to amend 3 years of returns and got back nearly $7,500 in total from properly claiming the AOTC I'd missed!

I just had to come back and say I tried taxr.ai after reading about it here and wow! I was in a similar situation with scholarships covering my tuition for 2022-2024, and I had no idea I could allocate some as taxable to claim the AOTC. The analysis showed I could go back and claim about $2,200 in AOTC credits each year after accounting for the additional taxes I'd pay on the scholarship portion. That's over $6,600 total coming back to me! The report even factored in my specific tax bracket during those years to make sure the credit was worth more than the extra tax I'd pay. Best part was how it laid out exactly what to put on each form for the amendment. I'm still amazed this is actually legitimate - it feels like a loophole but it's completely by the book according to IRS rules.

When I was dealing with this same issue, I spent WEEKS trying to get through to the IRS to confirm if this was legit. Literally called every day, couldn't get a human. Finally discovered Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in under 20 minutes to confirm exactly how to handle scholarship allocation for AOTC. The agent confirmed everything already mentioned here - yes, you can absolutely choose to treat some scholarship/grant money as taxable to increase your qualified out-of-pocket expenses for AOTC. You just need to be consistent in how you report it. If anyone wants to see how it works, there's a demo video: https://youtu.be/_kiP6q8DX5c. Saved me from giving up on claiming these credits because I couldn't get confirmation from the IRS directly.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I was also trying to figure out scholarship allocation for AOTC purposes. Not only did I get connected to an IRS representative in about 15 minutes (after spending DAYS trying on my own), but the agent was able to confirm exactly how to handle my situation. They explained that Publication 970 specifically allows treating scholarship funds as taxable to increase qualified expenses for education credits. For anyone else in this situation - the agent confirmed we can choose how to allocate scholarship funds between qualified expenses (tax-free) and non-qualified expenses (taxable). This is legitimate and explicitly allowed in IRS rules, not some shady loophole. I've already started preparing my amendments for 2023 and 2024. Thanks for sharing this resource!

Just to add one important detail: make sure you're eligible for AOTC for all those years! There's a 4-year lifetime limit, and you must be pursuing a degree and enrolled at least half-time. Also, double-check that your modified adjusted gross income was under the limits for each year. Oh, and don't forget that AOTC is partially refundable (up to $1,000), meaning you can get some of it back even if you owed zero tax. So this could be really beneficial for you!

Does anyone know if books and supplies count for AOTC? My scholarship covered tuition but I paid for all my textbooks out of pocket (like $1200 per year).

This is exactly the situation I was in! I had a full scholarship that covered tuition and fees, but I was kicking myself for not knowing about AOTC until after graduation. What really helped me was understanding that the IRS actually wants you to optimize your tax situation legally. The scholarship allocation strategy everyone's mentioned is completely legitimate - it's outlined in Publication 970. The key insight is that you're not "cheating" the system, you're just choosing how to characterize money you already received. One thing I'd add: when you're doing the math, don't forget to factor in your state taxes too. Some states will tax the scholarship income you're reallocating, but many also offer their own education credits that can help offset this. Also, if you're going to amend multiple years, consider doing them in order (2022 first, then 2023, then 2024) so if the IRS has any questions, they can see the consistent treatment across all years. This helped my amendments process much more smoothly. The fact that you were a full-time student with low income during those years makes this strategy even more beneficial for you. You're likely to come out thousands ahead after the amendments!