I'm not a parent, so that means I have lots of opinions about how other people raise their kids. That's why I was riveted by a segment on the "Today" show Thursday where a financial expert offered advice on dealing with adult children who've moved back home.
Supportive families are the first place most people of all ages turn for help in trying times. And the rough economy of the last few years has been blamed for a lot of these boomerang kid situations.
But while the television discussion focused on general financial do's and don'ts when relatives move in (or back in), I of course thought of the tax implications.
Every parent knows that they can claim a minor child as a tax dependent. That gives them an automatic added exemption amount to claim. That's $3,700 that's subtracted from adjusted gross income on 2011 returns, $3,800 per exemption for the 2012 tax year.
Guess what. If you and your back-at-home adult child meet Internal Revenue Service guidelines, you could get that added exemption again.
Your grown youngster obviously no longer qualifies as a dependent child, though he or she will always be your baby. But your son or daughter might count as a qualifying relative for tax dependency purposes.
This is the case if the person meets three other tests.
First, the adult lives with you all year as a member of your household. If the person is related to you, he or she doesn't even have to actually live in your house year-round, but that's another situation for another time.
Second, the person's gross (that is, total) income from all sources, is less than the exemption amount, which for 2011 is $3,700.
And finally, you provide more than half the person's support for the calendar year. If he or she is making less than $3,700 this shouldn't be a hard test to pass.
In all these requirements are met, be sure to claim the person as a dependent get that extra exemption amount.
And remember that this tax benefit doesn't apply just to your kids.
If you're a typical sandwich generation member, you might be helping out your aging parent, too. Mom or dad could be counted as a dependent for tax purposes, too.
The bottom line is that in addition to being a good relative, you get some appreciation at tax time. Take it!
Have family members moved in with you to weather a fiscal storm? If you survived the experience, please share your tips.
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