Q. Do I need to report the $728 regardless of the information on the form?
A. Technically, yes.
But, it depends on more details. What other income do you have. Generally, you do not need to file a tax return if you have less than $12,400 of total income (there are exceptions for dependents with unearned income).
It sounds like your school is trying to protect you by assuming you used all the difference for qualified expenses and put the box 5 amount in box 1. Generally a computer purchase is also a qualified expense.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid.
_________________________________________________________________________________
FYI
There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
