The general rule is: if you go to school out of state, you are still a resident of the state you were living in prior to the move, unless you take other steps to establish residency in the new state. This is particularly true if you lived with your parents and they continue to reside in state 1, and you return to that home on school breaks.
“$2500 tax break for (529 plan) deposits”? What does that mean? There is no federal deduction for contributions (deposits?) to a 529 plan. Many states allow a deduction, on state taxes. Or do you mean distributions (withdrawals) to pay for school? Distributions are tax free (there is no $2500 limit) if used for qualified expenses, including room and board. $2500 is the maximum amount of the American opportunity credit (AOC). Is that what you’re thinking about? The AOC is not available to grad students. There is a Lifetime Learning Credit (LLC)., maximum $2000, available. But, you cannot double dip. You cannot count the same tuition money, for the tuition credit, that gets you an exclusion from the taxability of the earnings (interest) on the 529 plan distribution.
Are you still your parent's dependent? That affects your ability to claim a tuition credit. Are you the owner of the 529 plan or just the beneficiary?
State taxes, depend on which two states are involved. But, the general rule is: your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state.
