<p>I wonder if the school will issue a 1098C for the amount of the deposit as an educational expense?</p>
<p>
I’m quite sure they won’t issue a 1098C since the student in question was never actually a student there. It was a deposit to reserve an available space, which was subsequently forfeited, not an educational expense. </p>
<p>If you go to the school then the deposit generally goes towards your tuition bill (and hence you can claim it), but if you pull out and the deposit is non-refundable then you’re just out the money.</p>
<p>Also, as a side note remember that 529 savings are created from after tax dollars. The ‘tax shelter’ is that you don’t have to pay any tax on the earnings from those savings in whatever account or investments they are held as. It’s essentially the same sort of setup as a Roth IRA. So when you claim the educational expenses against the 529 you’re not getting a ‘tax deduction’ so much as just being allowed to use those previously designated after tax funds, and any subsequent earnings, without penalty or paying additional tax on top of what you’ve already paid. </p>
<p>Also, remember that once you put funds into a 529 they’re essentially locked in for educational expenses (with a few obscure exceptions). If there is extra money left over after someone is done with college, or the beneficiary never attends college, the only thing you can really do without penalty is use the funds for a qualified relatives educational expenses. If you use the funds for anything else, you’ll get charged back taxes on all the earnings AND an Uncle Sam will take additional 10% cut of the funds… ouch!</p>