Carol attends State U. and received a $10,000 scholarship for her senior year th
ID: 2563898 • Letter: C
Question
Carol attends State U. and received a $10,000 scholarship for her senior year that began in September, year 1. Up to the time of her graduation in May, year 2, Carol had paid the following expenses for the two semesters:
1st semester: $3,000 tuition; $1,550 room and board in a dormitory; $400 for books and fees.
2nd semester: $3,000 tuition; $1,700 living expenses in an apartment; $250 for books and fees.
She used the remaining money from the scholarship to purchase clothes for job hunting in April, year 2.
Does Carol have any income as a result of the scholarship? If yes, how much is her income and in what years would it be included in income?
Explanation / Answer
Answer:
Only $3,000 + $400 are qualifying scholarship expenses from 1st semester because money used for board and room expenses does not qualify for exclusion. For the 2nd semester, only $3,000 + $250 are qualifying scholarship expenses and balance of scholarship money was not used for qualifying expenses ($10,000 - $3,000 - $400 - $3,000 - $250 = $3,550) should be included in income. She defers recognition of income till the acamedic year end that scholarship covers therefore all the income is included in year 2.