Security deposits are NOT deductible. That security deposit you paid is your money and will remain your money until such time as your landlord makes a legal claim to keep it, or part of it. However, it "is" a qualified expense for 529 funds. Just understand that if claimed as a qualified expense, then when that deposit or any part of it is refunded to you, then you must claim it as taxable income in the tax year it is refunded.
Also,keep this in mind. Colleges work in academic years, while the IRS works in calendar years. Generally, an academic year runs from Sept through August of the next calendar year. You would think that would create an issue at tax time. But it really doesn't. Here's how the IRS deals with it, and how you will deal with it on your tax return.
- Qualified Education expenses are claimed in the tax year they are paid. It *does* *not* *matter* what tax year is paid *for*.
- All scholarships, grants and 529 funds are claimed as taxable income *initially* in the tax year they are received. It *does* *not* *matter* what tax year that scholarship, grant or 529 withdrawal is *for*.
Now 529 funds are a bit different. For 529 funds those can be used to pay for the qualified education expenses of tuition, books, and lab fees. Additionally, they can be used to pay for the unqualified education expenses of room and board, if paid *in direct support* of the qualified education.
For example, if you use 529 funds to pay rent for a full year from Jan through Dec, yet you do not enroll in courses for the summer semester (June through Aug) then 529 funds used to pay room and board for those three months are *NOT* deductible. Since you were not enrolled for those three months, the room and board paid for those three months was *NOT* in direct support of the education. Now you can argue this all you want. But your argument is not with me. It's with the IRS. Rest assured you *will* lose the argument with the IRS.
Now, if you are an undergraduate and not married let me know. Chances are high that it's your parents, and not you that will claim the education expenses. In such a situation, you won't get anywhere even close to the deductions and credits your parents will get. It also doesn't matter if your parents don't claim you on their tax return. If they just *QUALIFY* to claim you, then that severely limits you on the education stuff, weather they actually claim you or not.
