Only tuition and fees are qualified educational expenses (QEE) for the Lifetime Learning Credit (LLC). Room and Board, books and computers are not. Usually the box 1 amount, on form 1098-T, is the all qualified expenses for the LLC (the AOTC is a little different)
How you do this may be best explained by example: You have a 1098-T with $15,000 in box 1 and $8000 inbox 5. You need $10,000 of QEE to get the maximum $2000 LLC. That leaves only $5000 of expenses to be covered by the scholarships on a tax free basis*. In order to claim $10,000 of qualified expenses, you must claim $3000 of your scholarship as taxable income. In TurboTax, you do this by designating $3000 of the scholarship for room & board.
*Books, computers and other required course materials are qualified expenses for tax free scholarships, but not the LLC.
