Do not enter anything, about education on your daughter's return. As a dependent she is not eligible for a tuition credit. Since you are the "recipient" of the 1099-Q, not her, she does not report the 529 distribution. She has no taxable scholarship to report.
If you are not claiming a tuition credit, then just don't enter either the 1099-Q or 1098-T on you tax return. They are only informational documents and are not required to be entered. The distribution is fully covered by expenses.
If you are claiming a tuition credit, then some of the 529 distribution is taxable because you are using some of the expenses for the credit and cannot use the same expenses for the 529.
$15,325 in educational expenses(including room & board)
-$ 0 paid by tax free scholarship
-$4000 used to claim the American Opportunity credit
=$11,325 Can be used against the 1099-Q
Box 1 of the 1099-Q is $15,220
Box 2 is $9197
11235 / 15220 =73.8% of the earnings are tax free; 26.2% are taxable
26.2% x 9197= $2408
You have $2408 of taxable income
One possibility is that TurboTax allocated part of your dependent's college expenses to claim the Tuition credit, even if you are not eligible or otherwise did not claim it. That reduces the amount that can be used to claim the 529 earnings, shown on the 1099-Q, as being totally tax free. 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. You may reach that screen sooner.
