Q. Can I put that at room and board on the question in her tax return, as a deduction or a qualifying expense for an education credit?
A. No. Room and board (R&B) are not qualifying expenses for a tuition credit or for her scholarship to be tax free.
If you or she had a distribution form a 529 plan, then the R&B would be qualified expenses for that distribution to be tax free.
Furthermore, she has $15,420 of taxable income to report on her tax return (40,261 - 24,841 = 15,420). Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free. Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room & board are not QEE.
If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses.
If you are entering the 1098-T, on your return, TT will advise you that your student has taxable scholarship income to be reported on his/her return. It will not (and should not) enter the taxable scholarship on your tax return.
If that is her only income, it is not enough to require her to file (less than $15,750).
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
