I purchased a condominium for my dependent college student to live in while registered as a full-time student 800 miles from home. I realize that I can't use 529 funds to pay the mortgage on this property. Can I use 529 funds to pay utilities (electric, water, sewer, etc.) at the condominium while he lives there? Can I use 529 funds to pay condominium monthly HOA fees while he lives there?
You must use whatever values your school publishes in their cost of attendance (COA) documents as your maximum.
Off campus room and board [housing & food] are eligible expenses for a 529 plan distribution. You CAN count mortgage interest (but not principle payments), as well as insurance, real estate tax, utilities and HOA fees.
But, the amount you can claim is limited to the lesser of what you actually pay or the school's "allowance for cost of attendance" (usually, what on campus students pay for housing ["room"] ).
Do you mind posting a link to an IRS publication that supports the statement made in this post? Thank you
Do you mind posting a link to an IRS publication that supports the statements made in this post? Thank you
Listed here, the law states that mortgage payments are not qualified education expenses. The parent borrows the funds (and incurs interest expenses), not the beneficiary student. Therefore, it is not a qualified education expense.
Loan payments and their associated costs such as interest are not housing expenses.
Pub 970 ( https://www.irs.gov/pub/irs-pdf/p970.pdf ) is the reference for this topic. But, you're not going to find that specifically covered.
The bottom line, for most parents with kids in off campus housing, is that your tax free 529 distribution is limited to the cost of attendance or what on campus students pay, whichever is less.
Thank you! I was actually mainly looking for the source of the following statement in the post above:
“You CAN count mortgage interest (but not principle payments), as well as insurance, real estate tax, utilities and HOA fees.”
it it not covered in the article you linked here.
Q. I was actually mainly looking for the source of the following statement in the post above:
“You CAN count mortgage interest (but not principle payments), as well as insurance, real estate tax, utilities and HOA fees.”
A. Pub 970 ( https://www.irs.gov/pub/irs-pdf/p970.pdf ) is the reference for this topic. But, you're not going to find that question specifically covered. What you have here, is just my opinion. That money (mortgage interest, insurance, real estate tax, utilities and HOA fees) was spent on housing ("room") for the student while attending college. So, I think that makes them qualified education expenses for a 529 distribution.
The bottom line, for most parents with kids in off campus housing, is that your tax free 529 distribution is limited to the cost of attendance or what on campus students pay, whichever is less. The IRS is most likely going to accept that number.
Q. It it not covered in the article PaulaM linked here?
A. I agree. That said, here is a published opinion that disagrees with me. But, it too, is just an opinion; not an IRS publication or US code.
https://www.savingforcollege.com/article/can-i-pay-my-mortgage-with-529-plan-money#:~:text=A%20mortgage%20payment%20is%20a,home%20mortgage%20interest%20tax%20deduction. Note the suggested workaround to have the student pay rent.
Another thing to consider: For tax purposes, the condominium is a 2nd home (unless you are charging rent). As such, the mortgage interest is deductible, as an itemized deduction, on Schedule A. But you cannot "double dip". That is, you cannot deduct, on Sch A, the same interest that you used to claim an educational expense ("room") for the 529 distribution. But, you can split the interest between the two tax attributes, deducting some on Sch A and using some for the 529 distribution.
My last reply was edited to add:
Another thing to consider: For tax purposes, the condominium is a 2nd home (unless you are charging rent). As such, the mortgage interest is deductible, as an itemized deduction, on Schedule A. But you cannot "double dip". That is you cannot deduct, on Sch A, the same interest you used to claim an educational expense ("room") for the 529 distribution. But, you can split the interest between the two tax attributes.