TurboTax (TT) will automatically claim the AOTC and assign $4000 of the available expenses to it. That reduces the amount available for the 529 1099-Q and some of it becomes taxable. The AOTC is more generous than the 529 earnings exclusion, so most people should go along with TT's allocation*.
Room and Board, even if the student lives at home, is a qualified expense for the 529 Distribution, so you should enter that to reduce the taxable amount.
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." So, if you know none of it is taxable, you do not have to enter the 1099-Q. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
*If you want to change it, 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 “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.
