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Unless your state has some oddball law (cannot presume) yes you can use 529 money to pay for the mortgage of a house YOU bought for your child to live in during college. The amount cannot exceed on campus house cost though.

You will have to claim the amount you pull from the 529 to pay for the mortgage as rental income as if you rented the house out. This is an entirely different matter because not 100% of the money is true income, you do have expenses and it would be treated as if you rented it to a stranger and not family.

Simple.
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