Jane Malcom and her husband John have three children. They have been saving in anticipation of their three childrens college attendance using a 529 savings plan. Being huge K-State fans and supporters, they anticipate that all three of their children will attend K-State. As a result, when their first child decided to attend K-State, they used their trips to Manhattan the first year to locate and purchase a home near campus with 4 bedrooms. Their idea was that each of their children would use the home for their dwelling while attending school, and, to the extent capacity existed, rent the home out to other students to offset the costs of the home. At the end of their childrens time at K-State, they would sell the home, hopefully at a profit.

Given that each of their children turned out to be an outstanding student, earning scholarships to cover their tuition and other class-related expenditures, the Malcoms would like to maximize the amount that can be withdrawn from their childrens 529 plans for other allowable expenditures. They have spent a significant amount on improvements to the home, and, of course, the cost of the home itself and things like electricity and gas. Note: The home was purchased with cash.

1. What, if any, of the costs of the home and improvements can be withdrawn from their childrens 529 plans?

2. What other tax strategies can the Malcoms use for minimizing their total federal income tax as they relate to the home?