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Slacker boyfriend may be tax-deductible

A dependent doesn't have to be a relative or even live with you, but you do have to provide more than half of his or her support and meet other criteria.

By MSN Money Partner Feb 15, 2012 9:32PM

This post is from Ashlea Ebelingof


Could Liz Lemon snag a tax break for supporting her slacker boyfriend who’s moved in with her on NBC's "30 Rock"? Maybe.


If your boyfriend, grandma or unemployed brother is crashing on your pull-out couch, you might be able to claim him or her as a dependent on your federal income tax return. It’s not just children, or even relatives, who can count as dependents, but unrelated friends whom you support and who live with you. The idea is these folks aren’t filing tax returns and taking a personal exemption for themselves. So you add them to your return as a dependent, taking a dependent exemption, and share the wealth.


"The tax implications are pretty dramatic," says Robert Meighan, vice president of Intuit's TurboTax. A dependent exemption on your return gives you a $3,700 deduction (you'll owe less in tax or get a bigger refund). Plus it can mean that you qualify for other tax breaks, including the child tax credit worth $1,000, the earned income credit up to $5,751 and the dependent care tax credit up to $2,100.


The question of whom you can claim as a dependent has always been one of the most common questions at tax time, Meighan says, and it's more prevalent lately. Changing family dynamics, the lackluster economy and high unemployment have created new living arrangements and upended the old notions of who typically supports whom. (Post continues below video.)

A record 54.1 million Americans lived in multi-generational households in 2009 -- up from 46.5 million in 2007, according to a Pew report, "Fighting Poverty In A Tough Economy, Americans Move In With Their Relatives." This included many unemployed young adults moving back in with their parents.


In order to catch these changing dynamics, TurboTax revamped its questions around dependents in the 2011 version of its tax software to get at the breadth of the deduction. The questionnaire begins: "Your children and those your support are worth every penny you spend on them. Let’s see if we can get you a $3,700 deduction for each dependent you support."


The rules for parents claiming minor kids as "a qualifying child" are pretty straightforward. The child must live with you for more than half the year and be under 19 at the end of the year, or under 24 and a full-time student. There is no income test.


The 30-something who has moved back home and is out of work has to meet the "qualifying relative" rules to be a dependent. Bizarrely, a "qualifying relative" does not have to be a relative at all. The person you’re claiming as a dependent under these rules has to be a U.S. citizen and can’t have filed a joint tax return. You must have paid for more than half of his or her living expenses (this is the "support" test). And he or she must have earned less than $3,700 last year (Social Security  or disability payments don’t count towards this limit).


If it’s a relative you’re claiming under this rule, the relative does not have to have lived with you (think grandma in a nursing home). If it’s a non-relative, then he or she has to have lived with you "full-time." Note: the IRS allows for absences. A person is considered to have lived with you during periods of time when one or both of you are temporarily absent due to special circumstances such as illness, education, business, vacation or military service, although it must be reasonable to assume that the absent person will return to the home after the temporary absence.


You get one exemption per dependent. Danita Leonard, a correctional officer in Virginia, won a U.S. Tax Court case (Danita J. Leonard v. Commissioner) in 2008 claiming dependent exemptions of $3,200 each for a friend and the friend’s two minor grandchildren who lived with her in her rented apartment. They lived off of Leonard’s salary (79%) and the friend’s disability income (21%) -- thus Leonard provided more than half of the others’ support, the judge reasoned.


"A lot of people in the past viewed it as 'my obligation' to take care of family members, and they did it and didn't think of it as a tax deduction,” says Marc Soss, a tax and elder lawyer in Sarasota, Fla. Now he regularly brings up the dependent exemption at client meetings.  One client couple moved the wife's mom, recently widowed and in her 80s, from New York to Florida to live in an in-law suite they built for her on their property. The couple brought mom in to Soss to update her estate-planning documents, he told them about the dependent exemption, and they’ve been taking it for her for the past four years. "They did it before it was the fab thing to do," says Soss. "When I told them about the deduction, they said, 'That’s not why I’m helping Mom, but I'll take it.' "


High-income taxpayers once faced a phase-out of the exemption deduction, but that phase-out expired in 2010, and it isn't set to return until 2013. So there is a window where high-income taxpayers will be able to take the full exemption deductions for themselves and their dependents. But if you're subject to the alternative minimum tax, you can't deduct exemptions in any case.


On the IRS interactive tool Who Can I Claim As A Dependent? there's one more question: Did your relationship violate local law? This refers to the fact that there are still some jurisdictions where it violates law for unmarried individuals to co-habitate. "The tax code recognizes the scarlet A if the local jurisdiction still has such laws," says Claudia Hill, an enrolled agent in Cupertino, Calif. But in practice, Meighan says he’s never heard of this being challenged, and TurboTax doesn't even include the question in its software.


More from Forbes and MSN Money:


Feb 17, 2012 10:26AM
So you have a boyfriend with no job and is a good lay as a tax deduction. Then a visit to a prostitute should be a medical deduction.
Feb 17, 2012 7:01AM
I have been taking this deduction for 4 years, ever since the soon-to-be mother of my child moved in with me.  She doesn't "work" (othe rthan raising our child asnd taking care of the house, of course).  I provide 100% of her support.  It is a no-brainer that I should be allowed to claim her as a dependant.  She IS a dependant.  Of course, we could try to scam the system by having her try to get food stamps, unemployment, Medicaid instead of me paying $370/month for her insurance, etc, but that's not how I was raised.
Feb 16, 2012 5:54PM
I see your point, pocket... but I do believe that if said adult is on disability and living with you, while it is technically 'income', it's not taxable and therefore no return is filed, which means you can take the deduction for them as long as you meet the other criteria.   I'm sure there are MANY households in the U.S. that have disabled folks under its roof.  I have someone living with me who is on disability, and I make 3 times what his disability pays, and so I think I'd qualify for the deduction, at least I hope so!   I happen to work with acvcountants so I'm about to ask someone about this tout suite!!
Feb 17, 2012 10:14AM
Yeah, now hoping the **** will finally get a job and move the hell out. After sticking with him for 3 unemployed years, can't take it any more.
Feb 17, 2012 10:56AM

The tax code is very clear if you provide over half of their support you can claim them, plain and simple!! It does not state they have to be a spouse, child or relative. Unfortunately the current tax code is way to class biased and complicated. A flat tax system seems to be fairest way to go. Think about it, one of the fairest taxes (I know oxymoron) are gas taxes. If you drive you pay the tax. If you fill up in my state your driving on our roads thus you are paying for their upkeep. A flat tax would ensure that EVERYONE of all economic classes would pay their fair share. It would also eliminate tax evasion and nonpayment of taxes as it would be automatically held from paychecks. Another option or addition is a federal sales tax in lieu of or a reduction of flat income taxes. Think about that, everyone pays including the rich, poor, foreign tourists and even illegal immigrants. The richer someone is the more stuff they buy and in essence in the end they pay more tax.  Although the harsh reality is none of this will ever happen because it would put the gouging greedy tax lawyers, accountants and IRS agents out of business.

Feb 17, 2012 5:43PM
 Gasoline tax is not a flat tax  it is what's called a user fee.  If you buy gas you use the roads, therefore you pay for the upkeep.  However you are correct that it is a fairer way to provide services and tax simplification.

I just read the article and am wondering if I can file a return using only the SS income.

I did not have any tax withheld.

 I did, however, support my son who is unemployed and did not have an income.


Feb 18, 2012 1:56PM
someone on here addressed gasoline tax. farmers vehicles and i mean all of them, those crew cabs that are as plush as caddys, are exempt. that needs to be changed. semis and farm equipment are the worst on roads
Feb 16, 2012 1:17PM
Interesting.  To claim a non relative the person has to live with you, you have to provide over half his support and he has to make less than $3,500 a year I believe.  I doubt most adults would qualify, you never know. 
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