In December 2016, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the Spring semester of 2017. However, she did not use the funds to pay the tuition until January 2017. Emily can exclude the $2,500 from her gross income in 2016.

Question

Quizplus · Accepted Answer

Scholarships are generally excluded from gross income if they are used for qualified education expenses. Since Emily is a cash basis taxpayer, she reports income when received, but scholarships intended for future education expenses can be excluded from income in the year received if they are used for qualified expenses in the following year.

In December 2016, Emily, a Cash Basis Taxpayer, Received a $2,500