In order to claim you student has a dependent, you must provide over half of their support. Tuition and fees are included in the cost of support, as well as housing, utilities, meals, etc. Income from scholarships is not included as support. However, as noted in the article below,
"The IRS has not given guidance on how distributions from Sec. 529 plans affect the support tests. These distributions can be substantial. If the distribution is counted as support provided by the beneficiary (child), it could prevent the child from qualifying as a dependent. Sec. 529 plans allow the owner (usually a parent or grandparent) to change the beneficiary. This provides some support for the argument that Sec. 529 plan distributions should count as support from the account owner and not count as support provided by the child, but tax practitioners are still waiting for a definitive answer from the IRS."
However, as there any distribution exceeding the cost of qualified education expenses is included in the gross income of the student, they are generally seen as contributed by the student for his or her own support. Unfortunately, there is not clear cut answer on this from the IRS to date. You should use discretion on claiming the student as a dependent and consider other cost of living factors, as well.
Tax Planning for Parents of College Students
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