Why is TurboTax asking about Room and Board expenses on my 1098-T form? So confused!

The confusion here is understandable! Room and board are NOT qualified education expenses for tax purposes, but TurboTax is asking for a very specific reason. When you receive scholarships or grants (Box 5 on your 1098-T) that exceed your qualified education expenses (Box 1), the excess amount is potentially taxable income. If you used some of that excess scholarship/grant money to pay for room and board, you need to report that portion as taxable income. The American Opportunity Tax Credit (AOTC) is calculated based on your out-of-pocket qualified education expenses. By indicating how much of your scholarship went to non-qualified expenses like room and board, you're essentially telling TurboTax that those scholarship funds weren't used for qualified expenses, which may increase your eligible expenses for the AOTC. This is why the software asks these questions - to accurately calculate both your taxable scholarship income and your eligible education credits.

After dealing with a similar 1098-T situation last year, I found this tool that was super helpful for figuring out exactly how to handle scholarships and education credits. I used https://taxr.ai and it analyzed my 1098-T and other education docs, then explained exactly how to report everything correctly. It showed me how to allocate my scholarship funds between qualified and non-qualified expenses to maximize my credits. The system actually explained that reporting some scholarship money as being used for room and board (making it taxable income) can sometimes increase your AOTC and save you more overall. It walks you through the calculations so you understand why TurboTax is asking those questions.

I tried the taxr.ai site that Profile 12 mentioned and wow - it actually cleared up my confusion completely! I uploaded my 1098-T and financial aid statement, and it showed me exactly why TurboTax was asking about room and board. Turns out I had about $3,500 in scholarship money that exceeded my tuition, and the tool calculated that I should report that amount as being used for room and board (making it taxable), but doing this increased my American Opportunity Credit by $2,800! Even after paying some tax on the scholarship, I came out ahead by over $2,000. The explanation made it so clear why this matters - it's all about properly allocating your scholarship/grant money to maximize your credits. I went back to TurboTax and answered those questions with confidence. Seriously helpful for anyone dealing with education credits!

I had the exact same issue and spent 4 DAYS trying to reach someone at the IRS to explain this 1098-T confusion. Kept getting disconnected or waiting for hours. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me a callback from the IRS in under 2 hours! The IRS agent confirmed what others here are saying - reporting scholarship money used for room and board as taxable income often results in a bigger education credit. The agent walked me through exactly how to fill out those TurboTax questions for my specific situation. Definitely recommend using Claimyr if you need to actually speak with someone at the IRS about education credits - saved me so much frustration.

Ok I have to eat my words. After being completely skeptical about Claimyr, I decided to try it anyway since I was completely stuck with my 1098-T and education credit questions. I got a call back from the IRS in about 2 hours! The agent explained exactly how to handle my situation in TurboTax - turns out I needed to indicate that some of my scholarship went to room and board expenses which made that portion taxable, but it increased my education credit significantly. The whole process saved me about $1,800 on my taxes compared to how I was going to file before. So yeah, totally worth it for getting direct IRS guidance on this confusing education credit situation.

One thing nobody mentioned yet - make sure you're actually eligible for the American Opportunity Credit before going through all this trouble. You can only claim it for 4 tax years, and you need to be enrolled at least half-time in a degree program. Also, there are income limits. I made the mistake of claiming it for a 5th year and ended up with a painful audit situation. Just a friendly warning to check the basic requirements first!

Has anyone actually compared the Lifetime Learning Credit to the American Opportunity Credit for this situation? Sometimes the LLC might be better depending on your circumstances, especially if you're beyond your 4th year of college.

I went through this exact same situation last year and it was so confusing! The key thing to understand is that TurboTax is trying to help you optimize your tax situation, not trick you into claiming something wrong. Here's what's happening: When your scholarships/grants (Box 5) exceed your qualified education expenses (Box 1), you have flexibility in how to allocate those funds. By telling TurboTax that some of your scholarship money went to room and board, you're making that portion taxable income BUT you're also freeing up more of your qualified expenses to count toward the American Opportunity Credit. The math usually works out in your favor - you might pay a little tax on the scholarship money used for room and board, but the increased AOTC more than makes up for it. Just make sure you actually did have room and board expenses equal to what you're claiming the scholarship covered. One tip: Keep good records of all your education-related expenses (tuition, fees, books, room, board) so you can confidently answer these allocation questions. The IRS allows you to choose how to allocate scholarship funds as long as you're truthful about your actual expenses.