Deductions & credits

Here are some steps to take to diagnose the issue with your education expenses:

1.  A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.  Check you answer to that question in TurboTax. Note that sometimes it is difficult to get back to the original questions, so if you seem "stuck" in the middle of the interview, keep clicking to "Continue" until you reach the summary screen at the end and you can edit the each section of you education expenses there.
2. Make sure the 1098-T is identified with your daughter instead of someone else on the return.
3. Check your entry of the Form 1098-T to make sure you entered the correct amounts and checked all the boxes in TurboTax that are checked on the actual Form 1098-T. 
4. Check your response to the question about if your scholarship was used for room and board.  To the extent you used a scholarship for room and board instead of "qualified" education expenses such as tuition and books, it is taxable to the scholarship recipient.
5. Check your response to the question about whether your scholarship was payment for teaching, research, or other services. If it was, it is taxable.
6. Education expenses for tuition are generally considered qualified only if paid to an eligible institution, so find that question and make sure it is answered correctly.
7. The American Opportunity Tax Credit (AOTC) has several qualifications, including a limit on your adjusted gross income.  Compare your situation to the AOTC qualifications at this IRS link.

If these steps don't identify the issue, see IRS Publication 970 at this link for the complete rules on whether you education expenses are qu....