Nicole is a student at USB Law School; she receives a $52,000 scholarship for 2018. Of the $52,000, $40,000 is used for tuition, $5,000 is used for books, and $7,000 is used for room and board. How much of the scholarship is excluded from taxable income for Nicole in 2018?

a. $52,000

b. $47,000

c. $7,000

d. $5,000

e. $45,000

The correct answer is option e.

Explanation:

Scholarships may or may not be taxable. Scholarships are generally tax-free when they are used to pay for tuition, books and other necessary equipment.

Here, Nicole is getting a scholarship of $52,000 for the year 2018.

She is spending $40,000 on tuition, $5,000 for books and $7,000 for room and board.

The total expenses are

=$ (40,000+5,000)

=$45,000

So, out of $52,000 non taxable amount is $45,000.

Nicole will be taxed for $7,000 and will be exempted from tax for $45,000.