The student reports all of his scholarship ($11,765) as income, freeing up all expenses for the tuition credit and QTP distribution.
You claim $4000 of qualified expenses* for the tuition credit. That leaves $7031 ($3213 + 1527 + 6291 - 4000 = 7031) for the QTP distribution. 7031 /11765 = 59.76% of the distribution is qualified. 40.24% is non qualified. 0.4024 x $6000 = $2414 of the earnings is taxable (on his return, since the 1099-Q was in his name).
Yes, the taxable scholarship goes to line 8r of Schedule1 and the taxable QTP earnings to line 8z of Schedule1.
How to enter in TurboTax? Shortcuts are highly recommended. On your return, enter a 1098-T with $4000 in box 1 and 0 in box 5. On his return, enter the 1098-T with 0 in box 1 and $11,765 in box 5.
After entering the 1099-Q, on his return, 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 all the expenses. Press Done at the 1099-Q summary screen, to get there. Also enter $4000 the box "Tax-free assistance". This reports the earnings as taxable and claims the scholarship/tuition credit exception. You do not have to deal with matching the complicated “Educational expenses and Scholarships” (1098-T) section later. TT will prepare form 5329 to claim the penalty exception.
*The 3213 tuition & fees + $1527 qualified purchases is qualified expenses for the credit. 3213 = 1527 = 4740 > 4000.
Do you have the box 2 ($6000) and box 3 $($5765) numbers right on the 1099-Q? Usually the round number is in box 3 (basis).
