The only "QUALIFIED" education expenses are tuition, books, and lab fees. That's it. There are no exceptions. Not ever.
Qualified education expenses and stuff will be reported to you on a 1098-T.
529 distributions will be reported to you on a 1098-Q.
However, you must understand how things work when it comes to a 529 plan distribution.
For starters, colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you FIVE CALENDAR YEARS to get the four year degree. Now you would think that complicates matters when it comes to taxes. But it really doesn't. The IRS rules actually simplify it.
- Scholarships, grants, and 529 distributions are reported as taxable income *** INITIALLY*** in the tax year those funds are received. It *does* *not* *matter* what tax year those received funds may be "for".
- Qualified Education Expenses are reported/claimed in the tax year they are "PAID" and it *does* *not* *matter* what tax year is paid *for*.
Scholarships and grants can be used to pay for the qualified education expenses of tuition, books, and lab fees. That's it. There are no exceptions.
- 529 distributions can be used to pay for the qualified expenses of tuition, books, and labs fees *AND* the unqualified but allowed expense for room and board *PROVIDED* that room and board is paid "IN DIRECT SUPPORT" of the education.
So when entering information in the Education section of the program, it is imperative that you work through that section of the program the way it is designed and intended to be used. If you do not, then chances are EXTREMELY high that you will not be asked for room and board expenses, and therefore you WILL PAY TAX on the 529 distribution.
