"Second 1098-T shows:
Box 1 $58425
Box 5 Scholar Ship $37000
The actual tuition paid is $70690 (College scholarship paid $70690)"
Why was the $70,690 not accounted for on the 1098-T? Are the 58,425/37,000 in addition to the 70,690? As stated, it doesn't make sense.
"Box 1 58425 (and then entered actual tuition paid 70690) and the Box 5 $37000 scholarship"
What about the $70,690 scholarship?
Why are you not entering the room & board for the 2nd school?
You are allowed to allocate all the expenses between the two 1099-Qs as you see fit, for the best benefit. You are not restricted to entering one school for you and one for her. Although doing so can get messy.
529 Scholarship Exception.
Here's quick workaround in TurboTax:
Enter the 1099-Q. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS). Enter the student's name when asked. A few screens later, you'll get one simple screen to enter expenses. Press Done at the 1099-Q summary screen, to get there. Also enter the amount of the scholarship in the box "Tax-free assistance"*. This reports the earnings as taxable and claims the scholarship exception. You do not have to deal with the complicated “Educational expenses and Scholarships” (1098-T) section later. TT will prepare form 5329 to claim the penalty exception.
*In addition to the expenses, you paid with your distribution, also enter the expenses that were paid by the scholarship. This will show that scholarship paid the same amount of expenses (as the non qualified portion of the distribution) qualifying you for the penalty exception.
