Q. Tax return is calculating $29000 scholarship fully taxed?
A. That is unusual and there is no known glitch in TurboTax (TT). I suggest you delete the student (and 1098-T) and re-enter.*
You should expect to see one of two things.
1. TT treats $3866 of the scholarship as taxable, so that you can allocate $10,000 of tuition to get the maximum Lifetime Learning Credit (LLC).**
2. TT does not give you the full LLC because you only have $6134 of net tuition.
Books and a computer are qualified expenses for tax free scholarship but not the LLC.
*Or, be on the look out for a screen called "Amount used to calculate education credit" (or similar wording). It sounds like TT may have entered the full $35134 (also unusual). You are allowed to change it at that screen (to $10,000, 6134, or 0).
**Grad students are generally not eligible for the more generous American Opportunity Credit, except in the year they receive their BS/BA.
