I agree with DavidS127, the 529 distribution does not qualify for rent, unless housing is available from the school.
Side issue:
"Because he is full time, he is no longer a dependent."
That's not correct. He may not be a dependent, for other reasons, but not for being a full time student (or being a full time worker). In fact, it's just the opposite; being a full time student is the primary qualifier for being a dependent.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student.
- He lived with the parent (including temporary absences such as away at school) for more than half the year
See full rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...
