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Dear Tax Talk,
My daughter is 24 and a student in veterinarian school. She had $2,400 in income. She took out student loans for her tuition, about $17,000. My husband and I paid the balance of all her medical bills after insurance, bought food and supplies, gave her a car, bought clothes but certainly not more than that $17,000 she borrowed for her tuition. Can we still claim her as a dependent under the qualifying relative definition?
Although you may think of your daughter as dependent, you need to run through a series of tests to determine if you can claim her as such.
A child can be claimed as dependent if he or she is a qualifying child or qualifying relative. Unless permanently disabled, a child can only be a qualifying child if the child is under age 24 at the end of the year, and a full-time student. The major difference is that as a qualifying child the dependent’s income is not a factor.
Since your daughter was 24 in 2008, you can only claim her as a qualifying relative. Among other common tests, a qualifying relative must have gross income less than the exemption amount, which for 2008 is $3,500. Your daughter passes this test.
The principal other test is that you provide more than half of the support for the year. To figure if you provided more than half of a person’s support, you must first determine the total support provided for that person. Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities.
In figuring a person’s total support, include tax-exempt income, savings and borrowed amounts used to support that person. Assuming your daughter spent the $17,000 she borrowed to pay for tuition, the value of everything else you provided would have to exceed that amount in order to claim her as a dependent.
This would mean that your support items would have to be in the range of $1,500 a month. In determining support, you can include the value of the home you share. The value of the home would either be rent paid or its fair rental value, divided by the number of occupants. You would also include your daughter’s share of utilities, maintenance and food.
For example, if it’s just the three of you and your home’s rental value is $3,000 a month and you spend $1,000 in food, utilities and upkeep on the house, your daughter’s monthly share would be $1,333. When you add in her car, insurance and cell phone, you may just be providing more than half of her support.
Work sheet 1 of Publication 501 provides the format for calculating the support test.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.