A number of students live off-campus with a lease valid for 12 months. Since summer time is holiday time, many students return home. It follows that a perceptive student could think of using the 529 money tax free for paying the rent for a full year. Confusion also exists as whether the withdrawal can be made prorate dependent on a number of months when he is actually studying in the educational institution.
Off campus possible
There is no need to stay inside the university grounds to enjoy 529 tax free provisions for rent. The cost of rent can be withdrawn even if the person is a part-time student. The boarding allowance allocated by the college included in the cost of attendance to get federal financial aid can be withdrawn. This figure is published publicly on the website of the educational institute. The candidate may also request financial aid office to provide that request. The tax law, however, does not specifically mention whether the student can withdraw money for rent of the full year even if he or she attends classes for only nine months scattered over the year.
According to Brian Boswell of theSavingforcollege.com website, there are multiple interpretations to this policy. The most conservative one states that although the apartment is taken on lease for a full year- coming to 12 months- only housing expenses borne by the student while the person is enrolled can be termed qualified. Boswell, however, points out that no specific guidance exists on full year and off-campus housing payments. The IRS is dense on this particular issue.
Aggressive interpretation and allowance
Boswell continued on to say that an aggressive approach can be had if the concerned student paid the rent for a full year, it can be regarded as qualified as long the person was enrolled for a minimum of part time study. There is another condition too- the expenses must be the same or less than the room allowance. The latter is usually determined by the said institution. The expert asks those who go down this path to be careful. There is no surety that the rent already given for months which are not spent on studies will not be taxable when the IRS comes knocking. The IRS, he added in the same vein, will have no problem if the price for housing outside the campus is less than the anticipated amount offered by the educational institution for a study year.