A client has been told by a college which deals with special needs students that payment for tuition,room and board is deductible as a medical expense. The client has a 529 plan. Can this money be used to pay the school, and then a medical expense deduction take for the payment?
Have the college fax you a copy of the law or reg on point or the letter rule for that one--then post it here. If they have it, it should not take your client long to goet it her for posting.
#43366 - 05/19/0801:14 PMRe: Using 529 money to pay for special needs college, and then deducting payment as medical expense
[Re: Drew]
Joe HurleyJoe Hurley
Registered: 01/07/00
Posts: 2080
Double-dipping is generally not allowed by the tax law. But I don't know of anything that would specifically prohibit claiming a medical deduction for an expense that was paid with a tax-free 529. As Drew implies, the bigger hurdle may be substantiating it as deductible medical. In either case, your client should rely on the advice of their own tax professional.
It is also quite unclear as to just who might be seeking the deduction for tax purposes--remember the 529 is the prior completed gift of the donor to the beneficairy --so the post reeks of potential double counting possibilities. Then again I have no reason to doubt the college has it right--just lets have a copy of the colleges rationale and tax sources posted........
What the tax code does say is that one can pay an infinite sum for anothers tuition or medical bills if paid direct to provider and such is NOT a gift NOR income
That the problem with a letter rule---what might be satisfactory answer for one application gets expanded by others as a potential cure all. If you read LR200521003 it is very poorly written with disjointed logic--only good news is LR are valid only for person to whom issued. Some clown in IRS failed to think this one thru and suffered social engineering. It makes sense that tuition paid primarily for medical needs can be addressed as payment of medical expense--and it could be seen one way for one person at an institution and anotherway for a different person at a different person, OK, that part so far is logical, but to jumpt to conclude that 100% of the tuition is for medical expenses seems an unsupported leap. Now if the institution had say an allocation that 30% went to education-open to al, and up to 70% went to medical on a case by case bais I'd say 70% is medical w/o further debate. The letter rule addresses Sec 213 which is medical expenses ..
Now if I take money out of a Sec 529 for education buy the very nature of what is written its for education if its qualified so to me its close to an oxymoron to take money out under color if it being for education then to say its really not for education but for medical and seek to deduct same under s Sec 213 arguement.
The letter rule , despite it flaws, is quite narrow and I fail to see where its an excuse for a double dip on the tax code to use with a 529.
And for the college to dispense legal/tax information to applicants which by the very nature of a LR is NOT applicable to others I think borders on reporting the admissions staff to the local state bar for the unlicensed practice of law.
Now that doesn't mean the folks in the Beltway would not be inclined to give away the store.
But it just so happens that one of the outstanding lawyers who represneted the Democratic position in the Florida vote count debate is quite dislexic --should we divine what portion of his law school costs were medical ? And a not so recent Harvard Law graduate was blind--was his cost medical? Hey, and both these men hold widely accepted degrees. Some of the places which seek out handicapped studnets with a high ability to pay---I doubt thier degrees hold up very much and last time I looked some of those institutions seemd to master in dropouts....
