Question

John Smith received a scholarship from university of Houston-Down town for $20,000. He used the scholarship for:

Tuition                                                    12,000

Computer                                               1,000

Books and Supplies                               3,000

Meals and lodging                                 4,000

Determine the effect of the scholarship on John Smith Income

Answer 1

John smith received a scholership from university of houston down town of $ 20000. now we will examine the taxability of this amount on some conditions laid down by IRS to become eligible for a tax free status.

one condition is that the student should be a degree sudent at an eligible education institute whicj has regular faculty, course and students, on these criterian the ubiversity of houston down town and john smith are qualified. second condition is that scholership should be expensed for eligible expences. eligible expenses are expenses for tuition fees for any other fees, books, supplies and equipments that are required for the course, so scholership will be taxfree up to the limit of qualified expences. the third condition attached herewith that the scholership is not in lieu of any work or teaching assignment and scholership should not have any liability to work like assistant etc.

So on above parameters john smith's scholership will be taxable as follows.

Tuition $12000 (Eligible)

Computer $1000 (eligible as required equipment)

Books & Supplies $3000 (eligible)

Meals & Lodging $4000 (ineligible as these are college expences)

So $16000 is taxfree scholership for Mr. John Smith.