Of course it's not taxable. There's an error in TurboTax (TT). You have two choices: go thru the interview again and find the error(s) or delete the student and start over.
In the interview, you will be asked if any of the scholarship was used for room and board. Any number you enter at that box will be treated as taxable
If you know what the projected outcome is, I recommend short cuts in the TT education interview. I assume, you know that none of your 529 distribution is taxable because it all went for qualified expenses. You know that none of your daughter's scholarship is taxable because it all went for qualified expenses. You know whether you are eligible for a Tuition credit.
Just don't enter the1099-Q, because it all went for qualified expenses.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
In claiming the tuition credit, just enter the 1098-T and don't bother entering any other numbers. They won't change anything.
