If $14,815 of the $42,643 tuition was paid by Scholarship and the remaining $27,828 was paid by the 529 distribution, then there was no tuition left for you to claim the AOTC. TurboTax (TT) should also be telling you that some of the 1099-Q earnings is also taxable.
To get the AOTC, you need to enter all the remaining expenses, room, board, books and computers, so that enough tuition is freed up to claim the AOTC. You may have to declare some of the student's scholarship to be taxable to do so.
There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
Go through the education section again. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use ($4000) or change it.
Instead, in the education interview, you may reach a screen titled "Choosing a larger education Credit". Verify that TT has entered $4,000.
