Q. How do I enter this.
A. Very carefully. You have to enter the expenses at the 1098-T section, making adjustments in your entries for expenses and scholarships allocated on her return. You need to show the scholarship amount matching the non qualified portion of your distribution.
As I explained at your other post*, it's best to use a 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 adjustments needed in the “Educational expenses and Scholarships” (1098-T) section later. TT will prepare form 5329 to claim the penalty exception.
*https://ttlc.intuit.com/community/college-education/discussion/2024-education-1099-q-calculations/00...
** 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.
