Question

Kelly receives a scholarship of $9,500 from State University to be used to pursue a bachelor's degree. She spends $4,000 on tuition, $3,000 on books and supplies, and $2,500 for room and board. How much can she exclude?

Answer 1

Kelly can exclude $7,000 of her $9,500 scholarship from her taxable income since she spent that amount on qualified education expenses like tuition and books, but she cannot exclude the $2,500 spent on room and board as it is not considered a qualified expense.

Step-by-step explanation:

Kelly has received a scholarship of $9,500 to be used for her education.

According to the IRS, scholarship money can be excluded from income if it is spent on qualified education expenses, which include tuition and fees required for enrollment or attendance at an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the educational institution.

Room and board are not considered qualified education expenses for this purpose.

Kelly spent $4,000 on tuition and $3,000 on books and supplies, which adds up to $7,000.

These are qualified education expenses, so she can exclude the entire $7,000 from her taxable income.

However, the $2,500 she spent on room and board is not a qualified education expense, so she cannot exclude this amount from her income.

All in all, Kelly can exclude $7,000 from her scholarship from her taxable income.