Qualified Expenses
If a beneficiary’s “qualified education expenses” in a year equal or exceed total Coverdell account distributions for the year, 100% of the distributions are excluded from the beneficiary’s gross income.
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Definition – In addition to POST-SECONDARY education (same definition as for education credits), qualified expenses also include ELEMENTARY and SECONDARY school expenses., The term “school” for this definition includes any school which provides elementary or secondary education (Kindergarten through grade 12) as determined under state law (IRC §530(b)(3)(B)).
Qualified elementary and secondary education expenses are defined (Code Sec. 530(b)(3)) as -
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Expenses for tuition, fees, academic tutoring, special needs services in the case of a "special needs beneficiary," books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of a Coverdell account's trust as an elementary or secondary school student at a public, private, or religious school. (Code Sec. 530(b)(3)(A)(i))
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Expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with the enrollment or attendance of the designated beneficiary at the school. (Code Sec. 530(b)(3)(A)(ii))
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Expenses for the purchase of any computer technology or equipment (as defined in Code Sec.170(e)(6)(F)(i)), or for Internet access and related services if the technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years that the beneficiary is in school. (Code Sec. 530(b)(3)(iii)) But this will not include expenses for computer software designed for sports, games or hobbies, unless the software is educational in nature. (Code Sec. 530(b)(3)(A)) Qualified higher education expenses also include amounts paid to buy tuition credits or certificates, or to make contributions to an account, under a qualified state tuition program for the beneficiary of the account (Code Sec. 530(b)(2)(B)).
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Room and Board Expenses - Room and board expenses qualify as higher education expenses only if the beneficiary is enrolled at an eligible educational institution for at least a half-time basis. For this purpose, room and board expenses generally are the school's posted room and board charge, or $2,500 per year for students living off-campus and not at home. (Conf Rept No. 105-220 (PL 105-34) p. 363)