Your 1098-T is filed with the IRS. Whatever you report on your tax return must be consistent with the information they have.
Report the 1098-T exactly as it is written, paying attention to issues like whether the spring semester tuition for 2017 was reported on your 2016 form. (Many schools report the amount billed in box 2, with box 7 checked - includes amounts for the spring semester. If you click on the blue line below box 2, it will open another box where you can report just the amount that was paid for 2016 - click on the screenshot below).
What is the source of the extra money? If it comes from the GI bill, it is tax-free, even if used for living expenses. If it is from other sources, any amount above the cost of your education must be counted as income if it is used for living expenses. The good news is that you won't get charged payroll taxes. But you want to report all of your eligible education costs in order to reduce your taxable income.
The books and school-related expenses include things like drafting tools if you are taking a course in drafting, a calculator if required by a math class, safety goggles for a lab class, etc. You definitely should report those, because they reduce the amount of the scholarship that would be taxable. Whether or not they had to be purchased from the school is relevant only if you are claiming an education credit, and it sounds like you are not, because your scholarship exceeds the cost of your education.
Below the line for Other education expenses (for all schools) you will see a line for Scholarships/Grants (for all schools) (visible in the screenshot below). Click on the Edit icon next to it to open the dialog about your scholarships. The amount used for living expenses will be equal to Scholarships minus (sum of all education expenses). If you reported that some of the tuition was for 2017, report only the tuition for 2016. Otherwise, you will run into a problem later.
