The 1099-Q should not be entered for two reasons. One, the IRS does not want you to, IRS Publication 970, Tax Benefits for Education states:
If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions.
Two, the program holds apart $10,000 for LLC as hostage to manipulate calculations based on the taxable 1099-Q income.
Delete the 1099-Q so the IRS and program can function effectively. As an adult, claiming her own exemption in graduate school, she may qualify for the LLC.
The $15,000 of 1099-Q largely went to room and board. The 1098-T of $15,000 minus the little bit left of the Q after room and board leaves room to claim the LLC and probably get the full amount of her tax liability up to $2,000 covered.
Remember, living at home does not mean there is no room and board. Use the off-campus guide provided by her college to determine the allowable costs for living off campus. See 529 for Room and Board.
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