@sonofdod wrote
The numbers:
$11,346 Payments to schools for qualified expenses
+ 1,078 Books purchased outside the school for classes
$12,424 Total qualified expenses paid
- 4,000 AOTC
$8,424
- 13,750 Scholarships not restricted to tuition
$ -5,326 What the child will end up claiming as taxable scholarship income
Your math is correct. There are several ways to do it. The simplest is for you to enter $4000 of tuition and no other numbers, on your return. Since you have manually calculated the taxable amount of scholarship ($5326), enter the 1098-T, on her return, with 0 in box 1 and the taxable amount ($5326) in box 5, and no other numbers. It is OK to tell TurboTax (TT) she received a 1098-T, as that fact is not sent to the IRS. You're just using it as an entry tool. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.
It is better if taxable scholarship is entered in the education section, rather than the other income section, as that gets TT to place the SCH5326 notation on the dotted line next to line 1 of the 1040.
