Yes, TurboTax is designed to automatically optimize your education credit. However, it was very god to get to the education information yourself and indicate you only needed $4,000 of the education expenses to be considered for the credit.
The reason $10,000 is chosen for the maximum eligible education expenses to allocate to an education credit is because of the Lifetime Learning Credit. The Lifetime Learning Credit is 20% of the first $10,000 of qualified educational expenses.
Typically, if there is an option, tax software will default to the most conservative value in order to protect the taxpayer from an incorrect position. In your case, however, the correct tax position is for the American Opportunity Tax Credit which only requires $4,000 of qualified education expenses in order to calculate to the maximum allowable credit of $2,500.
