Hi KathrynG3, thank you for your detailed answer and instruction. I have tried your method three times by wiping out the 1098-T, 1099-Q, and all education expense information and reentering information following your suggested order, but unfortunately the issue reported in my original post persists. Namely, although TurboTax uses only $4,000 from our total "qualified education expenses" $32,462 to get us the American Opportunity credit in Form 8863, it still deducts $10,000 from the total "qualified education expenses" $32,462 to get the "adjusted qualified education expenses", which is below our 529 distribution in 1099-Q. This $6,000 more deduction causes us to pay tax for "taxable 529 withdrawal" while in reality $32,462 - $4,000 is greater than our 529 withdrawal. I do think the use of $10,000 deduction from the total "qualified education expenses" when comparing with the 529 withdrawal is a TurboTax bug.
