No. If you do that, then you will risk not being able to claim your daughter as a dependent on your tax return, and you will not be able to claim the education benefits. But remember the "board" side of room & board. 529 money can be used to pay for that too. (basically, her three meals a day). However, make sure your claim is reasonable. You may find it difficult to convince the IRS that a college student is having a $30 meal 3 times a day.
Best thing to do is to only withdraw from the 529 an amount that you can "prove" you used "that" money for. Remember, 529 funds can be used for tuition, books, lab fees, room *and* board - which is basically 3 meals a day, 7 days a week if they are living a significant distance from their tax home.
Besides, your way doesn't make sense. What you deduct on the education side, is just taxed on the rental income side. You're creating additional book keeping and paperwork for absolutely no gain to anyone.
