On the parents return enter the 1098-T with $3744 in box 1 and nothing in box 5. Enter no other numbers.
On the student's return, enter the 1098-T with $2450 in box 5 and nothing in box 1. Enter no other numbers.
On your return, enter the 1099-Q, exactly as received. Follow the interview. You will have to enter the student’s name. All the numbers will be entered at the 1099-Q section (not the education expenses section) because the beneficiary is not your dependent.
When you get to the boxes, enter $11247 for tuition (this number is arbitrary and is entered to establish a penalty exception). Enter $9882 (see below for why) for room & board (or split 9882 between R&B and books). Enter $7503 at Tax free assistance and $3744 at other adjustments (7503+3744=11247).
I come up with: (1093*/10,975)x3794 = $378 as the taxable amount of distribution.
*11247+9861+768=21,876 Total expenses
21876-(10,700-2450)=13,626 not covered by tax free scholarship
13626-3744 (used for credit) =9882 expenses available for 529 distribution
10975-9882=1093 of the distribution not covered by expenses
