Neither you nor she can claim a tuition credit, because the school is not an "eligible institution"*.
So, no, you should not drop her from your return.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
1. He is under age 19, or under 24
if a full time student for at least 5 months of the year, or is totally &
permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are
considered third party support and not as support provided by the student.
3. He lived with the parent
(including temporary absences such as away at school) for more than half
the year
So, it doesn't matter how much he earned. What matters is how much he spent
on support. Money he put into savings does not count as support he spent on him
self.
The support value of the home you provided is the fair market rental value
of the home plus utilities & other expenses divided by the number of
occupants.
Furthermore, there is a rule that says IF somebody else CAN claim him as a
dependent, he is not allowed to claim his own exemption. If he has sufficient
income (usually more than $6350), he can & should still file taxes; he just
doesn’t get his own $4050 exemption (deduction). In TurboTax, he indicates that
somebody else can claim him as a dependent, at the personal information
section.
Even if he had less, he is allowed to file if
he needs to get back income tax withholding. He cannot get back social security
or Medicare tax withholding.
*Enter your school at the link
below, to verify if it's not on the dept. of education list.
https://fafsa.ed.gov/FAFSA/app/schoolSearch?locale=en_EN
