My son dropped his laptop and must replace the screen and hard drive. Can the repairs come out of his 529 account?
On December 18th, 2015 Congress passed The Protecting Americans from Tax Hikes Act of 2015 (the PATCH Act) that included a provision which allowed computer purchases to be a qualified education expense for 529 plans, retroactive to January 1st, 2015. Prior to the PATCH Act, college students had to prove that the computer was required by the school in order for the expense to be considered qualified.
The IRS now allows the purchase of a computer, peripheral computer equipment, computer software, and internet access as a qualified education expense. If purchased with 529 funds, they require that the computer is used primarily by the beneficiary when the student is enrolled in school.
The IRS states that expenses for computer software for gaming, sports, or hobbies are not considered a qualified expenses, unless the software is predominately educational in nature.
The IRS does not place a limit on how many times one can purchase a computer using 529 funds. The only condition is that the computer is primarily used by the beneficiary while enrolled in school. Assuming that condition is satisfied, a replacement computer can be purchased with 529 funds and still be qualified.
But what if your computer breaks and all you need is a repair? Currently, there is no clear yes-or-no answer to this question. The language from the IRS states that “the purchase of a computer… and related services” are qualified. Would a computer repair be considered a related service? It is a judgement call.
If you are interested in using 529 funds to be reimbursed for the cost of your student’s computer repairs and don’t feel comfortable making the decision on your own, you should discuss the idea with your CPA or tax preparer.
Taking distributions from 529 accounts generates a 1099-Q in either the account holder or account beneficiary’s name, and it is the responsibility of the payer to justify that funds were used for qualified education expenses.