Daughter is claimed as a dependent on our taxes. She is a fulltime student at university A. 1098T box 1 $8400 and box 5 is $2500. For university B where she attended a 6 week summer program box 1 shoes $2700 and box 5 $3900 ( reflecting the $1200 stipend). Can that $1200 stipend be put toward the qualified educational expenses at University A to avoid paying taxes on it. If not, how do I add the $1200 as taxable income on turbotax? Can it be done on the free file version? Also, university A is in our home state of NC. University B is in Michigan. Will she need to file taxes in both states?
You can enter both 1098-T's for both schools in the Education Section. TurboTax will add both Box 1 amounts and Box 5 amounts together, so you will still have plenty of Education Expenses left to claim education credits, and not have any taxable scholarship income.
Here's instructions on How to Enter a 1098-T.
You may have to upgrade to Deluxe from the Free version, but TurboTax will let you know as soon as you enter anything not covered in the Free version, and you upgrade immediately (and painlessly).
She won't have to file a tax return in a non-resident state, unless she paid tax there and wants a refund.
Here's more info on How to File a Non-Resident State Return.
Q. Can that $1200 stipend be put toward the qualified educational expenses at University A to avoid paying taxes on it?
A. Yes.
Q. Also, university A is in our home state of NC. University B is in Michigan. Will she need to file taxes in both states?
A. No. Taxable scholarship is considered income sourced in the student's home state, not the state the school is located in. But, that's an academic question; she has no net taxable scholarship after allocating the School B scholarship to School A tuition.
She does need to enter either of the 1098-Ts, on her taxes as we know none of it is taxable. So, she should be able to continue with the free edition. You enter both of the 1098-T on your tax return to claim tuition credit. For simplicity, you only need to enter School A's 1098-T.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your or the student's tax return. If you claim the tuition credit, you do need to report that you got one.