This statement includes different amounts that you may need to report if you are claiming the tuition and fees deduction as an adjustment to income on Form 1040 or 1040A, or you are claiming an education credit – either the Hope credit or the lifetime learning credit, on Form 8863. The educational institution can report either the total amount it actually received for qualified education expenses, or the total amount it billed. The amount reported in box 1 represents the total amount the educational institution received from all sources for qualified tuition and related expenses. If you made all the payments, this would be your total expense, if you are on the cash basis. If you are on the accrual basis, you may need to use the amount billed in box 2.
For purposes of the tuition and fees deduction, just as in the case of the student loan interest deduction, the student must be you, your spouse, or your dependent. The expenses must be required for enrollment or attendance at an eligible postsecondary educational institution. Unlike the student loan interest deduction, the student does not necessarily have to be enrolled in a degree program. And also unlike the student loan interest deduction, expenses for purposes of the tuition and fees deduction do not include personal, living, or family expenses such as room and board. The educational institution is required to make an allocation between qualified education expenses and personal expenses, such as room and board. The amount reported on Form 1098-T should be qualified education expenses. Box 4 shows the scholarships and grants that were processed by the educational institution for your account. You may have to reduce your allowable expenses by this amount in calculating your tuition and fees deduction or education credit.
Box 3 shows any adjustments to qualified tuition and fees reported on a 1098-T for a prior year. This may reduce any credit you can claim for prior year expenses. Box 5 shows adjustments to scholarships and grants reported in a prior year. This could also affect a deduction or credit you claimed for a prior year.