Your gut is correct: stipend + wages - tuition = $38k.
Room and board means only your lodging and meals. It could be an apartment your rent, a house you live in, or on-campus dorms.
Enter your 1098-T as well as the fellowship received in the Education Expenses & Scholarships section of TurboTax. After you enter your 1098-T information, the next page will include a box for scholarships/grants (for all schools) you received. You can include the $40,000 stipend there.
TurboTax is asking you to separate your expenses to determine how much of the fellowship is taxable. The amount paid for room and board is taxable. The amount used to pay for tuition is tax-free. The IRS states the following:
"Qualified Education Expenses (tax-free):
- Tuition and fees required to enroll at or attend an eligible educational institution.
- Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution.
Qualified education expenses do not include the cost of (taxable):
- Room and board.
- Travel.
- Research.
- Clerical help.
- Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.
This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable."
