My 18 year old daughter moved out right before graduation (lived with me 5 months). She lives with a grandparent who filed her taxes for her and put that she cannot be claimed by somebody else as a dependant. So when I filed my taxes and claimed her for those 5 months as my dependant, it was rejected because she put that nobody else can claim her. What steps do I need to take to fix this?

unless her gross income was $3950 or more in 2014 , also aslongas you met other requirements,i.e., provides more than half of the dependent's total support during the year, to claim her as your dependent as a qualifying relative, then yes you can claim her as your dependent as a qualifying relative on your return(even if she lived with you less than 6 months). Your parents cannot claim her if you could claim her as a dependent; if your child live with you, your parent doesn't qualify for the dependent deduction, even if they paid all her living expenses all year.or if the child’s father provided over half of your child's support, he can claim her or you can sign Form 8332 to allow your ex to claim her. Your parents cannot claim her.
then, they need to file irs form1040x your parents no longer qualified to claim her as a dependent.

I guess I wasn't clear on this. She turned 18, December of 2013. At the end of March, she moved in with a friend & her family. In May, she graduated & moved in with my dad. When my dad filed her taxes, he used TurboTax, & when it asked if somebody else could claim her as a dependent, he clicked no. So when I went to claim her, it kicked mine out. I was told she made $13,000 last year, if this helps. Should I just bite the bullet & paper file & hope the IRS sees my side & makes HER do an amended return? Just need some advice.

OK she is your daughter who lived with you LESS than half the year, right? So she can not be claimed as your qualifying child by you; to be claimed by you as your qualifying child, your daughter , regardless of her gross income level, must have lived with you for more than half the year in your home during the year( Her age of 18 yo was OK as she was younger than 19 yo); as a matter of fact, you ARE NOT allowed to claim the child because the child must have lived with her GP for over half the year. also you said that her gross income was $13K exceeding her personal exemption of $3,950, so you CAN NOT claim her as your qualifying relative either. So aslongas she lived with her GP for more than half the year, then they can claim her as their qualifying child as she was 18YO/ their grand daughter and has lived with her GP for more than half the year regardless of her gross income of $13K.So she is her GP’s dependent on their return aslongas your child lived in GP’s home for more than half of the year and as long as the CHILD didn't provide more than half of her own support.

NOTE; UNLESS you lived with your child for more than half of the year, the child is not your qualifying child and also unless her gross income was less than $3,950 for 2014, she was not your qualifying relative either so you CAN NOT claim your daughter but your parents can do.