@RobMc -
Based on your numbers, some of the 1099-Q is taxable, just not the full $2300 (see the example above). If you provide your room & board and book & other course materials expenses, I can give you a more exact amount. The TT interview is complicated.
You need to enter all her expenses, on her return and adjust for what you claim on your return.
I assume you claimed the American Opportunity credit on your return. That will make some of her scholarship (about $1000 depending on her book costs. See example below.
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There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
In your case, you can only use $2850 (plus any book costs) to claim the AOC (10,200-7350). But by her reporting $1150 as taxable scholarship, you can use the full $4000 of expenses.
