First, you will have an opportunity to add the expenses for books and other required fees/expenses as you work through the Education section in TurboTax. It will be in the follow-up questions after the 1098-T entry.
For the credit, the scholarship income will be reported on the student's return, up to the amount needed to claim the AOTC. Her parent(s) will then be able to claim the tuition credit on their return because that portion of the tuition was no longer paid by tax-free scholarships. This option is not available if the school’s billing statement shows the scholarships being applied to tuition, or if the scholarship is required to be used for tuition.
The IRS addresses this on page 62 of the IRS Form 1040 instructions, in the first paragraph under "Line 17c". Form 1040 Instructions
As an example, if your niece received $12,000 in scholarships and paid $9,000 in tuition/fees/etc., she could end up with $3,000 in taxable scholarship income and no AOC for her parent(s). However, if she claims $7,000 in taxable income, there is $4,000 available for education credits.
Keep in mind the limitations on claiming the AOTC, which can be found on Page 11 here: Pub 970
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