Yes, you've got the right plan. But just to make it easier, I suggest a short cut. On your return, enter the College1 1098-T with $3114 in box 1 and box 5 blank. On her return, enter only the college1 1098-T, with 0 in box 1 and $3165 in box 5.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.
If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.
If you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.
