It's true that TurboTax does not carry this over automatically, and there's a reason why. For the KY credit, you need to answer questions about if your daughter goes to a KY school (a college outside of KY does not count for the credit), and the credit may be claimed only for undergraduate studies. If you qualify, though, you only need to enter the amount of expenses used to calculate the federal credit. Kentucky gives 25% of the amount you qualify for.
So, if you have $4000 of qualifying expenses and are claiming American Opportunity Credit for a qualified Kentucky school, you will qualify to receive a $2500 credit on the Federal Return, and you enter $4000 for KY education expense. Your KY credit is $625. The Federal Credit may not actually be $2500, since $1500 is non-refundable. If you don't have $1500 of taxes before the credit, you lose the remaining nonrefundable credit. But you get an additional $1000 on your return because the other portion is a refundable credit.
Kentucky does not have a refundable credit, but it uses this credit as a carry-forward credit. This means that if you claim it but can't use it this year because your KY tax is already 0, you can use it next year, or the year after that...up to five years. It's one of Kentucky's best credits, so it's worth your trouble doing it if you qualify for it.
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