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Can You Claim Your Adult Children on Your Taxes?

It's possible, but after they turn 19, the rules become complicated

By Penelope Lemov | January 11, 2013
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Penelope Lemov is the founder and writer-in-chief of the blog Parenting Grown Children.

All good things come to an end, and in the realm of taxes, that certainly applies to the dependency exemption parents can claim for raising their children. But when exactly does that exemption end?

The $3,800 exemption on 2012 tax returns is a tax break you can claim regardless of whether you itemize or how much money you earn, as long as your son or daughter was under 19 last year. But if your child was 19 or older, well, it’s complicated.

When You Can Claim Adult Children

Here are the rules:
 
Let’s start with the simplest case. If your child was 19 to 24 and a full-time college student for at least five months of the year, the exemption is yours for the taking, so long as you provided at least half of his or her support.

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This isn't a high bar to meet for parents of undergrads or grad students. “If you’re paying for their education, it’s a no-brainer,” says Harold Miller, a CPA in New Haven, Conn. “That’s the largest expense in supporting them.”
 
When calculating whether you provided more than half of the support, you don’t need to factor in any scholarships or financial aid your child received. Nor do you need to count gifts from grandparents, as long as your son or daughter saved or invested the money. 

“If you’re paying for more than half of their support while they are in college, they could have a summer job and earn $5,000, and that’s still OK,” says Barbara Weltman, an attorney and contributing editor at J.K. Lasser’s Your Income Tax 2013.
 
When Dependency Exemptions Get Complicated

When the kids have completed college and you’re still supporting them, however, the dependency exemption rules get far more complicated. 

That’s an increasingly common phenomenon. In the wake of the Great Recession, with a great number of recent college grads unable to find work, many have moved back home. According to the most recent census data, 19 percent of men ages 25 to 34 — and 10 percent of women in the same age range — live with their parents.

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For you to claim a child who’s no longer a full-time student, your son or daughter must be what the IRS calls a “qualifying relative.” This is the same category you might use to claim an elderly parent or disabled child. (For the rules on claiming your parents on your taxes, see “How to Claim Tax Breaks for Supporting Your Parents.”) Another thing you might have to consider: If you were divorced or separated last year, the decision over who gets to take the exemption would be a matter of negotiation.
 
The Tax Rules Regarding Support

To be a qualifying relative, your child didn’t have to live under your roof in 2012, but you had to provide at least half of his or her support. Here’s the catch: You can take the exemption only if your adult kid earned less in gross income than the exemption is worth ($3,800), regardless of how much you contributed to his or her expenses. So even though your daughter has been trying to gain traction in an exciting career, if she took a part-time gig tending bar in the meantime, that could be the kiss of death, taxwise.
 
Although the dependency exemption is fairly sizable, keep in mind that it’s a deduction from income, not a credit against your taxes. So its actual value depends on your tax bracket. For example, at the 25 percent bracket (taxable income between $70,700 and $142,700 for couples filing jointly), a $3,800 exemption is worth $950.

“It’s a nice amount, but not anywhere near what it costs to support a child,” says Marty Kurtz, president of the Financial Planners Association and a planner in Moline, Ill.