Q.1. Why does she have to include the 7,100 as income when the scholarship/grant she received paid for classes and books for her degree(qualified educational expenses).
A.1. You haven't yet told TurboTax (TT) that the $7100 was used for qualified educational expenses (QEE), so it assumes the difference between box 5 and box 1 is all taxable.
Q.2. Why is not allowing me to get credit for the $1,900 that I did pay for her to go to school?
A. 2. TT assumes that $1900 was paid by scholarships (from box 5), not by you.
The 1098-T is only any informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income. or both.
If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. In you case enter $10,900 ($9000 + 1900) to get credit for the $1900 you paid.
At a later screen, you will be asked to enter any additional grants, not shown in box 5 ( "her scholarship/grant was a lot more then $9,000"). Anything used for room & board or other non QEE expenses is taxable to her.
