Correct, if the program first suggested the student claim the distribution, but now the distribution is allocated to room and board, and if the room and board is as much or more than the distribution, the student needn't claim any income in regard to the 1099-Q.
If the student is claimed as your dependent on your return, and if Form 1098-T Box 1 is larger than box 5, you would enter it for a credit.
If Form 1098-T shows more in box 5 (scholarships) than in Box 1 (tuition paid to the school) the student may need to enter Form 1098-T on their tax return to report the income. Of course Books and Supplies would also need to be accounted for.
I assume the programmers don't offer room and board until after Form 1099-Q is entered because that expense cannot be used for a credit and people would be asking why room and board is an option when it doesn't matter.
The Education section is very complicated because payments and expenses can be allocated in order to get a credit.
For example, if tuition was 5,000 and the distribution was 5,000, the program may suggest the student claim 4,000 so that the person claiming the student gets an education credit. Usually the credit is worth more than the tax and often the student doesn't meet the filing requirements and therefore there is no tax at all and still the taxpayer claiming the student gets the credit.
After entering the room and board, you can go back through the interview and select "Maximize my tax break" to see if the program is still suggesting the student claim any income.
You can type letme into the search to see if an education credit is being claimed and how much in expenses is being used for a credit. (you can also change it here as well)
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