Only one person can enter the Form 1098-T on their tax return. If a child is no longer considered a dependent then they may be able to claim the American Opportunity Credit or other education credits. The education credits and deductions are driven by the Internal Revenue Service (IRS) dependency rules. TurboTax has determine that your daughter's income situation has allowed her to take the American Opportunity Credit.
However, a person cannot double-dip tax breaks. In other words, a credit cannot be claimed for the same expenses that were paid with a tax free money education plan. Your daughter will need to report the Form 1099-Q (assuming that she is named as the beneficiary of the plan) on her tax return and report the non-educational amount as income. The reasoning is because the student pays the taxes on any excess scholarships, grants, and 1099-Q funds.
Please refer to the IRS Publication 970. The taxability of the excess amounts begin on page 52 and is explained with examples.
