ComplianceSeptember 11, 2009

Bailout Bill Added Computers to Approved 529 Expenses

<p>Among its many provisions, the American Recovery and Reinvestment Act (ARRA) included a rule change for Section 529 tax-free college savings plans and prepaid tuition programs to add computer equipment and services to the list of approved expenses until year-end 2010.</p>

Reported by Fred Schneyer

According to a briefing paper posted on the Internal Revenue Service (IRS) Web site, qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. Room and board also qualify for someone who is at least a half-time student.

For 2009 and 2010, the ARRA change adds expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. The IRS said covered computer and related peripheral equipment includes any auxiliary machine, which is designed to be placed under the control of the central processing unit of a computer, such as a printer.

Also included are computer software programs used for educational purposes. The tax agency said software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature.

In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit, or tuition and fees deduction, the IRS cautioned.

More information about 529 plans and recent changes to them is available here.