Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to the section you want to change; tuition, in your case.
Q. Is it okay for me to enter amounts for tuition, books, room and board, etc. if my daughter paid for these things with scholarship money, ESA money and loans?
A. Yes, to expenses paid by loans. "Sort of" to expenses paid by scholarship and ESA money. Scholarship and ESA money are usually tax free, if used to pay for qualified expenses. But you can't use the same expenses to claim a tuition credit. But you can claim a tuition credit but declaring some of the scholarship or ESA money as taxable.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship*
-$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q (ESA distribution)
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
*Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.
