You do not "deduct" the cost from the taxable portion of the distribution, or the distribution itself.
Box 2 of the 1099-Q is NOT the taxable amount. It is only the potential maximum taxable amount.
You use the cost of the R&B to calculate the taxable portion. If the cost of the room and board was more than or equal to the distribution amount (box 1 of the 1099-Q), then the taxable amount is 0.
If you already know the taxable amount is zero, save yourself a lot of effort. Do not enter the 1099-Q in TurboTax (TT). On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
