Room and board are qualified expenses for a 529 plan distribution. Since $7700 (R&B allowance) is more than $3000 ( 529 Plan distribution), forget the 1099-Q. It does not need to be entered. None of it is taxable.
You want to use $4000 of the Box 1 (1098-T) to claim the American Opportunity credit (AOC) on your return. That leaves $23,684 (27,684 – 4000 = 23,684) to allocate to the scholarship. $7255 (30,939 -23,684 = 7255) of the scholarship is taxable.
Enter the 1098-T, on both your return and his, with modifications. On your return, enter $4000 in box 1 and leave box 5 blank. Enter no other amounts in the TurboTax (TT) interview. That should get you the maximum AOC.
On his return, the short cut is to enter the 1098-T with 0 in box 1 and $7255 in box 5. Do not enter any other numbers.
Since his total income (1906 + 7255) is less than $12,200, technically he does not need to file a return, at all. But, some tax experts recommend that you do so any way to document that he reported the $4000 you used for the credit, as taxable income. He may also need to file to get a refund of any income tax withholding.
