The 1099-Q money can be used for miscellaneous expenses. You are claiming him and the allowable amount of his education expenses that will allow you to maximize the American Opportunity Credit on your return. He will claim any taxable income (scholarships in excess of qualified expenses) on his return. As Kris stated above, the max credit for the American Opportunity Credit comes from claiming up to $4K of qualified expenses. Only report expenses for which no tax benefits have been received for.
If the 1099-Q distribution is not taxed, it is not reported. The program uses the 1099-Q and the expenses you enter to determine if there is any taxable income you need to report.
According to the IRS:
"Generally, distributions are tax-free if they aren't more than the beneficiary's adjusted qualified education expenses for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.”
CLICK HERE for IRS Pub 970 Education Credits
The amount of scholarships he received in excess of the tuition and qualified education expenses is reported as income on his return. Then those amounts become eligible for the education credit on your return.
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