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Qualified education expenses include nonacademic fees,

Tax-free educational assistance includes:

such as student activity fees, athletic fees, or other expenses

1. The tax-free part of any scholarship or fellowship grant

unrelated to the academic course of instruction, only if the fee

(including Pell grants);

must be paid to the institution as a condition of enrollment or

2. The tax-free part of any employer-provided educational

attendance. However, fees for personal expenses (described

assistance;

below) are never qualified education expenses.

3. Veterans' educational assistance; and

Qualified education expenses don't include amounts paid for

4. Any other educational assistance that is excludable from

the following.

gross income (tax free), other than as a gift, bequest, devise, or

Personal expenses. This means room and board, insurance,

inheritance.

medical expenses (including student health fees), transportation,

and other similar personal, living, or family expenses.

You may be able to increase the combined value of an

Any course or other education involving sports, games, or

education credit if the student includes some or all of a

TIP

hobbies, or any noncredit course, unless such course or other

scholarship or fellowship grant in income in the year it is

education is part of the student's degree program or (for the

received.

lifetime learning credit only) helps the student acquire or improve

Generally, any scholarship or fellowship grant is treated as

job skills.

tax-free educational assistance. However, a scholarship or

You may receive Form 1098-T from the institution reporting

fellowship grant isn't treated as tax-free educational assistance

either payments received in 2017 (box 1) or amounts billed in

to the extent the student includes it in gross income (the

2017 (box 2). However, the amount in box 1 or 2 of Form 1098-T

student may or may not be required to file a tax return) for the

may be different from the amount you paid (or are treated as

year the scholarship or fellowship grant is received and either:

having paid). In completing Form 8863, use only the amounts

The scholarship or fellowship grant (or any part of it) must be

you actually paid (plus any amounts you're treated as having

applied (by its terms) to expenses (such as room and board)

paid) in 2017 (reduced, as necessary, as described in Adjusted

other than qualified education expenses, or

Qualified Education Expenses, later). See chapters 2 and 3 of

The scholarship or fellowship grant (or any part of it) may be

Pub. 970 for more information on Form 1098-T.

applied (by its terms) to expenses (such as room and board)

other than qualified education expenses.

Qualified education expenses paid on behalf of the student

by someone other than the student (such as a relative) are

A student cannot choose to include in income a

treated as paid by the student. Qualified education expenses

scholarship or fellowship grant provided by an Indian

paid (or treated as paid) by a student who is claimed as a

tribal government that is excluded from income under

CAUTION

dependent on your tax return are treated as paid by you.

the Tribal General Welfare Exclusion Act of 2014 or benefits

provided by an educational program described in section 5.02(2)

If you or the student takes a deduction for higher education

(b)(ii) of Rev. Proc. 2014-35, available at

IRS.gov/irb/

expenses, such as on Schedule A or Schedule C (Form 1040),

2014-26_IRB#RP-2014-35.

you cannot use those same expenses in your qualified education

expenses when figuring your education credits.

Coordination with Pell grants and other scholarships or

fellowship grants. You may be able to increase an education

Any qualified expenses used to figure the education

credit and reduce your total tax or increase your tax refund if the

credits cannot be taken into account in determining the

student (you, your spouse, or your dependent) chooses to

amount of a distribution from a Coverdell ESA or a

CAUTION

include all or part of certain scholarships or fellowship grants in

qualified tuition program (section 529 plan) that is excluded from

income. The scholarship or fellowship grant must be one that

gross income. See Pub. 970, chapters 6 and 7, for more

may qualify as a tax-free scholarship under the rules discussed

information.

in chapter 1 of Pub. 970. Also, the scholarship or fellowship

grant must be one that may (by its terms) be used for expenses

Prepaid Expenses

other than qualified education expenses (such as room and

Qualified education expenses paid in 2017 for an academic

board).

period that begins in the first 3 months of 2018 can be used in

The fact that the educational institution applies the

figuring an education credit for 2017 only. See Academic period,

scholarship or fellowship grant to qualified education expenses

earlier. For example, if you pay $2,000 in December 2017 for

(such as tuition and related fees) doesn't prevent the student

qualified tuition for the 2018 winter quarter that begins in January

from choosing to apply certain scholarships or fellowship grants

2018, you can use that $2,000 in figuring an education credit for

to other expenses (such as room and board). By choosing to do

2017 only (if you meet all the other requirements).

so, the student will include the part applied to other expenses

(such as room and board) in gross income and may be required

You cannot use any amount you paid in 2016 or 2018 to

to file a tax return. However, this allows payments made in cash,

figure the qualified education expenses you use to figure

by check, by credit or debit card, or with borrowed funds such as

your 2017 education credit(s).

CAUTION

a student loan, to be applied to qualified education expenses.

Adjusted Qualified Education

These payments, unlike certain scholarships or fellowship

grants, won't reduce the qualified education expenses available

Expenses

to figure an education credit. The result is generally a larger

education credit that reduces your total tax or increases your tax

For each student, reduce the qualified education expenses paid

refund.

in 2017 by or on behalf of that student under the following rules.

The result is the amount of adjusted qualified education

Example 1. Last year, your child graduated from high school

expenses for each student.

and enrolled in college for the fall semester. You and your child

meet all other requirements to claim the American opportunity

Tax-free educational assistance. For tax-free educational

credit, and you need to determine adjusted qualified education

assistance received in 2017, reduce the qualified educational

expenses to figure the credit.

expenses for each academic period by the amount of tax-free

Your child has $5,000 of qualified education expenses and

educational assistance allocable to that academic period. See

$4,000 of room and board. Your child received a $5,000 Pell

Academic period, earlier.

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Instructions for Form 8863 (2017)

Instructions For Form 8863 - Education Credits (American Opportunity And Lifetime Learning Credits) - 2017 Page 4

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