529 withdrawals are tax-free to the extent your child (or other account beneficiary) incurs qualified education expenses (QHEE) during the year. Since you daughter is the beneficiary, she would report his on her tax return and state the the distributions were for qualified educational expenses.
According to the IRS, you may claim the education credit if all three conditions apply.
- You, your dependent or a third party pays qualified education expenses for higher education.
- An eligible student must be enrolled at an eligible educational institution.
- The eligible student is yourself, your spouse or a dependent you list on your tax return.
It sounds like from what you have mentioned so far, you qualify for the credit. The big issue at this point is if the scholarships exceed expenses. If so, there is taxable income if scholarships exceed the educational expenses. if this is the case, then room and board can be used as an expense to lessen the taxable income. This is the only instance where you can report room and board as an expense.
Hope this helps.
@LT1219
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