Subscribe

Can 'boomerang kids' be a tax break?

There are a few things parents can do at tax time to help offset the costs of letting those adult children stay in the nest. 

  • close
    A family eating at a restaurant in 2015 in Rockville, Maryland.
    Melanie Stetson Freeman/Staff/File
    View Caption
  • About video ads
    View Caption
of

About 43% of men and 36% of women ages 18 to 34 still live with parents or relatives, according to the Pew Research Center, but experts say there are a few things parents can do at tax time to help offset the costs of letting those adult children stay in the nest. As with parenting, though, it can be a tricky endeavor.

Claim Junior as a dependent

In general, if your child isn’t making more than $4,000 per year and you’re providing more than 50% of his or her support, then he or she may still qualify as a dependent, says Jim Guarino, a CPA and certified financial planner at Moody, Famiglietti & Andronico in Tewksbury, Massachusetts. For the 2015 tax year, that can net parents a $4,000 exemption.

There are a few catches, adds David Haas, a certified financial planner at Cereus Financial Advisors in Franklin Lakes, New Jersey. First, you’ll have to be able to prove you’re paying more than half of the child’s expenses. Second, if your child is 24 or older, has a job and isn’t disabled, you probably can’t take the exemption.

Recommended: Taxes in 2016: 10 changes and five weird deductions

“The tax laws don’t make it easy,” he says.

Make her a tenant

It’s possible to turn that basement or bedroom into a rental and have your child pay to live there, which could make a portion of your utilities and other costs deductible. You may even be able to deduct some depreciation on the house, experts say, but the strategy also has a few caveats.

“In theory, it’s an absolutely great idea. The problem is, in order to be a landlord you really need to keep track of expenses,” Guarino cautions.

You’ll also need to report the rental income, and those depreciation deductions could come back to haunt you when you sell your house.

“Whatever you have written off as a percentage value of the house over a number of years has to then be added back in as taxable income when you go to sell the house,” says Guy Baker, managing director at advisory firm Wealth Teams Solutions in Irvine, California.

“If they never sell the house, it’s really a moot point,” Guarino notes, but the extra tax-prep time and costs could outweigh the savings, he says.

Hire your adult child

If you’re self-employed, it might be worth putting an adult child on the payroll if you’re supporting him or her anyway. The money you pay could then become a business expense instead of taxable income to you, and it shifts that money into the child’s tax bracket, which is probably lower, says David Demming, a certified financial planner at Demming Financial Services Corp. in Aurora, Ohio. Plus, he or she will have a job to do, though that may mean you can’t claim the child as a dependent.

“If you’re subsidizing your child anyway, it’s a way for the self-employed business owner to essentially deduct it,” Haas adds.

Capitalize on your health coverage

Flexible spending accounts allow workers to use pre-tax money to pay for prescriptions, copays, eyeglasses and other expenses. You may be able to use that tax-advantaged money to help cover your child’s health-related costs if he or she is still on your policy and your employer offers an FSA. Note, however, that the IRS limits how much you can put in an FSA each year. (The limit is $2,550 in 2016.)

Also, if you’re self-employed, aren’t eligible for a spouse’s employer coverage and you buy your own health insurance, it may be worth putting your child on your policy because the premium is usually deductible, Haas says. Remind adult children that staying on your policy can be a bargaining chip for negotiating higher pay from an employer by offering to stay off the company health plan, Guarino says.

And, he notes, you can remind them that moving expenses can be tax-deductible, too.

Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: torem@nerdwallet.com.

This article was written by NerdWallet and was originally published by USA Today.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK