The income limit for claiming a tuition credit is $180,000 (Married filing jointly), with a phase out between $160,000 and $180,000.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
Reference: On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
If you want to go to the trouble (and as you now know, it is a lot of trouble), of getting the TT worksheet, enter the 1099-Q first. Later, in the education expenses section, enter the 1098-T and follow the interview to enter other expenses and qualifying info. To get the screen to enter Room & Board, answer yes when asked if you have book expenses.
