Higher Education Case Study

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To: Sabrina Student
From: Magela Monzon
RE: Adjustment of qualified tuition and its related expenses from a qualified scholarship
Facts: Sabrina Student, who is a Physics major at Florida International University, was given a scholarship of $20,000 per year. She distributed the scholarship as follow: she paid $14,000 for tuition, $300 for required lab fees, $1000 for required books and supplies and $4,800 for room and board.
Issue1 and Conclusion1:
How much from the scholarship can Sabrina exclude from income?
Sabrina has to apply to the scholarship the tuition and its related expenses first, this portion is excludable from income. The rest ($4,700) is taxable because it is room and board.
Issue2 and Conclusion2:
Can she claim an education tax credit?
The $100 that used to complete the payment for room and board does not qualify her for an education tax credit because it is part of room and board.
Analysis1:
Under Reg. 1-25A-5(c)(1)(i) a scholarship is presented as excludable, if it is a qualified scholarship under IRC Sec.117. A qualified scholarship is a scholarship that must be used to pay for qualified tuition and related expenses only. However, there are some exceptions to (c)(1)(i) and they are under Reg.1-25A-5(c)(3). A scholarship is not presented as a
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However, if we assume that she has to apply the scholarship to tuition and its related expenses first, then the $100 that she has to pay to complete the payment for room and board ($4,800) does not qualify her for an education tax credit because it is part of room and board and room and board does not qualify for an education tax

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