Box 1 of the 1098-T does not include room & board or out of pocket costs for books and computers. Room & board, books and computers are all qualified expenses for the 529 distribution.
Yes, TurboTax (TT) is probably factoring in the 529 plan exclusion in denying you the credit. You want to claim the credit, even if it means paying a little tax on the 529 distribution. Better yet, have your student declare some of the scholarship as taxable.
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 ($4000 for the American Opportunity Credit). You may reach that screen sooner.
