@bill_321
Did you delete part of your previous questions or comments? Unless I am getting mixed up with other questions, I think you gave some details that are now missing. That's very confusing to me (unless I really am mixed up with a different question).
In any event, from what you just said,
Tuition $10,000
Room & Board $15,000
529 withdrawal $25,000
The withdrawal exceeds the adjusted qualified educational expenses and will be taxable. I did not understand that you wanted to withdraw excess funds.
You don't get to allocate the earnings to different expenses, it's all proportional. If the $25,000 withdrawal includes $10,000 of earnings; and if only 60% of the withdrawal is used for adjusted qualified educational expenses ($15,000÷$25,000) then 60% of the earnings are tax-free and 40% of the earnings are taxable. That's $4000 of taxable income.
If the $4000 to be taxes is not being calculated correctly in Turbotax, it may be that you have entered some other part of the expense and income equation incorrectly, or that Turbotax has an error of some kind (it might not be picking up the scholarship correctly, for example). Since the program is not finished for this year, I would plan to revisit this in January. You might want to purchase Turbotax to install on your own computer from a CD or download, since the desktop version allows direct inspection of the forms and worksheets and makes troubleshooting easier.
