You need to get the the screen that allocated the expenses to the credit.
In TurboTax Home & Business Desktop, please Click
Personal and then Click Deductions & Credits
(click "I'll choose what I work on" if needed)
Scroll down to "Education"
Click Update or Start next to Expenses and
Scholarships
Click Edit next to the student's name
Since you already entered the 1098-T-
On the "Here's Your Education Summary" screen-
Click "Other Education Expenses (for all schools)" to
enter additional expenses, such as books and supplies, if you entered a 1099-Q, expenses for room and board are entered here
Click "Scholarships/Grants (for all schools)" to enter
any ADDITIONAL assistance not listed on the 1098-T or 1099-Q
Click Edit next to "Education Information" (scroll down to see this if necessary) and answer ALL the
interview questions
The last screen will show the allocation of expenses for a credit. Enter Zero (0) if you are not eligible for a credit.
The program may have defaulted to allocating 10,000 if the 1098-T was entered first
Please change this allocation amount, in your case change it to Zero(0) since you are not eligible to take a credit.
Click Continue
The distribution should no longer show as taxable.
As a side note, if you do not get any tax break by claiming the student, and the student has taxable income, you do have the option of allowing the student to claim the non-refundable portion of the credit if eligible.
To do this, neither you nor the student claims the student's exemption and the student enters the 1098-T.
CLICK
HERE for IRS Pub 970, Tax Benefits for Education
