Tax Breaks For Dependents: Who Qualifies?
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If you think the IRS defines "dependent" only as a minor child living at home, there's good news. Especially for taxpayers who have newly arrived (or returned) housemates - like the 20-something son who monopolizes the bathroom or the brother-in-law who always gets to that last slice of cake before you do, no matter where you hide it. These freeloaders - uh, loved ones - can shape-shift into handy deductions. That is, if they freeload enough.
The number of families supporting or assisting boomerang kids, laid-off siblings or Madoffed parents has jumped in the past two years, for obvious reasons. And, as the 2010 Census will probably illustrate, it's not just the recession that's led to more intergenerational households. A study out this week from the Pew Research Center shows that boomer and boomerang demographics and cultural preferences - for immigrant families and millennial kids, among others - have sharply increased these numbers.
Take the following quiz to check your knowledge of tax deductions related to dependents (children and others). I thank H&R Block for research help. But of course, you should not consider this discussion as tax advice. Talk to a tax preparer or do more research on the IRS site or sites run by companies such as TurboTax or H&R Block.
1. Hallelujah! Your 22-year-old daughter finally got a full-time job. But she's still living at home to save up for med school. Can you claim her as a dependent?
No. Kids younger than 19 would qualify, but if she's between 19 and 24, she must be a full-time student for five months of the year.
2. Your elderly father lives with you in the winter months, but in his own apartment the rest of the year. Can you claim him as a dependent?
It depends. If you provide more than 50 percent of his living costs - which could include, say, his apartment's rent or utilities - you can claim him.
3. You spent about $6,000 last year on adoption costs, from the home visit to agency fees to travel expenses (one birth mother lives six states away). But the baby you hoped for has not yet arrived; this year you are looking into foreign adoptions. Can you take a credit for the $6,000 on your 2009 return? And another credit on your 2010 taxes?
You can take credits (up to a total of $12,150) only on your return for 2010 (the year after you incurred the expenses) or when an adoption becomes final, whichever is sooner. But note that the rules change for foreign adoptions: Those expenses are eligible only when and if an adoption becomes final.
4. Your godmother collects Social Security, but her medical bills are high, so she lives with you half the year and your brother the other half. Can each of you claim her as a dependent?
No. If she is not a relative (parent, grandparent, stepparent, uncle, etc.), she must live with you all year and you must provide for 50 percent of her support. If the two of you support a relative and want to claim him as a dependent, you should consult the IRS's "tiebreaker" rules.
5. Your son and his wife are both in the military and deployed. Their three minor children live with you, but their parents contribute to their support. Can you claim your grandchildren as dependents?
Probably, as long as you're covering more than 50 percent of their costs. But you should also consult the tiebreaker rules regarding your income relative to your kids' income.
6. Your son, who goes to college out of state, spent a week in the hospital on his campus last year. Your family's medical expenses for the year are just shy of the federal threshold for deduction, which is 7.5 percent of adjusted gross income. (State thresholds may be lower.) Can you include the cost of traveling to and from the hospital and your lodgings while you were there?
Yes, you can include your flight and other travel costs, and the hotel costs up to $50 a night.
7. Your stepsons live with their father during the school year, and he pays their expenses. They come to you for the summer. Can you claim them as dependents?
Probably. Exceptions to the 50 percent rule are made in many cases of divorce (as well as birth, death and some other circumstances.)
8. You live in North Carolina and you've got two kids in college, a senior and a freshman. Parents can take a HOPE tax credit of up to $1,800, and the maximum rises to $3,600 for students at Midwestern colleges, if they are in the FEMA-defined disaster area covered under an IRS rule. Can you take the deductions for your freshman at Duke University and your senior at Drake University, near Des Moines?
Yes on Duke, no on Drake. The HOPE credits apply only to students in their first year or two of college. (And there are other limits; see our guide here.)
9. Your mother-in-law is a citizen of Chile and has moved back to her hometown, but you and your husband send enough money to cover 90 percent of her expenses. Does she qualify as a dependent? No. The dependent must be a citizen or national of the U.S. or live full time in the U.S., Canada or Mexico.
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