The following is taken from IRS Publication 970:
Unfortunately, even though the lease on an apartment might be for a full year, only the housing expenses incurred while the student is enrolled would be considered qualified. So, if you pay monthly, only 8 of the 12 months the student is enrolled would be considered qualified.
There is no guidance on full-year off-campus housing payments from the IRS, so you might want to consult with a tax professional. That disclosed, there are two ways I can see the IRS guidance bring interpreted. Conservatively, the period for which the student is enrolled would be qualified, and you pro-rate the remainder. So if you paid $12,000 in rent for the year, then $8,000 would be qualified and the remaining $4,000 would not, assuming they were enrolled 8 of the 12 months.
However, that's not a literal interpretation of the guidance. Aggressively, if the student incurred a full year of rent - so long as they were enrolled at least half-time and expenses were at or below the room allowance as determined by the institution - it should be considered qualified.
I'd use caution, however, as the intent of 529 plans is not to pay for non-education expenses. Just because that's how it reads to me doesn't mean that the expenses would be considered qualified when scrutinized by the IRS. 529 plans are designed to help people pay for expenses associated with higher education, not to subsidize housing when the student isn't enrolled. So I'd suggest seeking out the opinion of a tax professional before making a commitment.
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.