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In a tight economy, it's not uncommon for adult children to remain in the nest rather than struggle to make ends meet on their own. If your grown child is still living with you, it only makes sense to look for a few tax perks to balance some of the cost. Unfortunately, the Internal Revenue Service is a little stingy with its rules regarding who qualifies as your dependent and under what circumstances.
Your child's age is the trickiest factor when determining whether she qualifies as your dependent and therefore earns you a dependent deduction. Different qualifying rules apply depending on how old she is. For example, if she's under 24 but still in school full time for at least five months of the year, she's your qualifying child. If she's over 24, or over 19 and not in school, she can still possibly qualify as your dependent, but as a relative, not a child. If the IRS considers her your child for tax purposes, she must live in your home for more than half the year.
If your child doesn't qualify as a dependent child because she's too old, income factors come into play. To qualify as your dependent, her income must be almost non-existent – $3,900 a year or less as of 2013. If she's young enough to qualify as your child, no income caps apply, although she cannot pay for more than half of her own living expenses. By contrast, you must pay be the one to pay for at least half of any qualifying relatives' living expenses. These include mortgage or rent, food, transportation, recreation, clothing and incidental necessities.
Just because your adult child hasn't moved out, this doesn't mean she hasn't married and brought her spouse home to live with you as well – maybe while they save for a home of their own. If this is the case, the IRS has one more rule for dependents: your child can't file a joint return with her spouse unless it's just to claim a refund.
The Dependent Exemption
After you determine that your grown child is still your dependent, you've got to wonder exactly what's in this for you at tax time. You can claim the $3,900 dependent deduction for her – unless your adjusted gross income is $300,000 or more, or $250,000 if you’re single. The dependent exemption begins phasing out and these incomes, and you lose it entirely if your income tops $422,500 if you're married, or $372,500 if you’re not.
IRS rules for claiming a deduction for medical expenses you pay on your child's behalf aren't quite as stringent as those that apply to claiming the dependent exemption. You can claim a medical expense deduction for your child if she paid less than half of her own support, even if she earned more than $3,900. Unfortunately, you have to itemize to do this, and your total medical expenses – including those you pay for yourself and other dependents – must exceed 10 percent of your AGI to qualify as of 2013. If you're paying tuition for your dependent, you can deduct up to $4,000 of it, and if you're paying off a student loan for her, you can deduct up to $2,500 in interest a year. Unfortunately, both these tax perks also phase out if you earn too much.
- IRS: Publication 501
- Iowa Legal Aid: What to Do if the IRS Challenges Your Dependency Exemptions or Child-Related Tax Credits?
- TurboTax: Tax Exemptions and Deductions for Families
- IRS: Annual Inflation Adjustments for 2013
- Maloney & Novotny: Tougher New Rule for Medical Expense Deductions Begins This Year
- The Washington Post: More Adult Kids Living with Parents and in No Rush to Depart
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