I can't help but giggle a bit here. I was concerned my response would be so long and drawn out (and it is) to the point of either total confusion, or total boredom. hehehehehe.
So, am I correct in saying that you inadvertently left out 529 from the expression "scholarship/grants" throughout the text and the picture, and we should read that phrase as always including it?
For the most part, you are correct. But there is a definable difference between scholarships/grants and 529 funds.
Scholarships and grants can only be used to pay for the qualified education expenses of tuition, books, and lab fees. That's it, with no exceptions. But the category of "lab fees" is rather broad and can include things like the purchase of a computer, if having a computer is a requirement for the students education. But there are limits that I can cover upon your request if you deem it necessary.
529 funds can be used for the qualified education expenses of tuition, books and lab fees, and the unqualified but allowed expenses of room and board, provided that room and board paid for with 529 funds was in direct support of the education. A lot of folks miss out on the 529 stuff because they don't think about what "room and board" includes, and more importantly what it *does not* include.
The ROOM part is more than just rent. It also includes the cost of utilities like water, gas, electric, and even internet access if that internet access is needed for the education. (Most college professors require that papers be submitted on line, so that makes internet access absolutely necessary for the student.)
The BOARD part is the cost of food. If the student lives on campus then more than likely you're paying for a "food plan" for each semester. If paid with 529 funds, then those funds are used to pay it, tax free. If they live off campus in a place their renting, its a good idea to keep all grocery receipts, but it's really not necessary or required *provided* what you include for food costs is "reasonable". In other words, don't go feeding your student steak and lobster three times a day. That won't fly with the IRS, as no college student in their right mind spends $60 a day on food. Be reasonable, taking into account the cost of living in the student's locale where they live.
Now while there are set maximum rates that one can claim for each meal, that rate differs from one location to the other. For example, when my son attended college at UCF he was living in an off campus apartment and shopping for his own food each week. In Orlando a reasonable cost for each meal back in 2005 was around $6 for breakfast, $8 for lunch, and $11 for dinner. But in a place like New Haven, Connecticut where Yale University is, breakfast could easily cost $12 to buy the ingredients to make it in a local grocery store.
So the thing is, "be reasonable". If in the IRS's eyes your claim for room and board is to high for the school your student is attending, you'll get a nasty gram from the IRS that basically says "prove it". You don't need that headache.
Some thing that you can not deduct if paid with 529 funds:
If your student signed a one year lease on a rental close to college and that's where they live while attending college, if they remain in the lease and continue to pay the rent for the three months of the summer they are "NOT" attending college, then the room and board for those three months is NOT in direct support of the education, and therefore does not qualify as an expense necessary for the students education. But so long as the student is enrolled in at least one course for the summer semester, you're good.
