Yes, you understand it correctly. You don't have to report anything from the 1099-Q.
You then ask "cannot deduct it, right?" You cannot deduct the 1099-Q, because you have already "excluded' it. There is no need to enter her 1098-T under Educational Expenses, because you have effectively already claimed those expenses for the 1099-Q.
If " deduct it" means you are asking can you claim the tuition credit based on the tuition you paid; the simple answer is No, because you have already used that tuition to claim the 529 plan earnings exclusion. You cannot double dip.
Your next question should be: was that the right thing to do? The answer is no (most likely). Unless you are ineligible for the tuition credit, due to high income, the tuition credit is much more generous. It's 100% of the first $2000 of tuition and 25% of the next $2000 and it's partially refundable. It's better to pay a little tax on the 529 distribution and claim the full tuition credit. This is also described above.
So, if you want to claim the tuition credit, you do need to enter the 1099-Q and the 1098-T and let TurboTax do the calculations (example above). Enter the 1099-Q first.
