Deductions & credits

Hi Osmanyolcu69,

Thanks for your question. What filing status have you been using in the years since your wife and daughter moved? I ask because, if you were filing Married Filing Jointly, the daughter would not have to live with you - if she lived with either parent, you could answer "yes" to that question. So I am presuming you are filing Married Filing Separately. Would filing jointly be possible? If so, that might be the easiest solution. 

Barring that - this is actually a fairly complex question and does not have one clear, straightforward answer. Let me give you a couple of ideas to explore. 

First idea - there is a concept with the IRS known as a "temporary absence". In other words, a person normally lives somewhere, but for a period of time they are elsewhere. For example - they are hospitalized, or they are in college and live in a dorm while at school, or they are in the military and deployed, etc. These are temporary absences that do not change their actual residence. 

If your daughter is temporarily absent from your home due to special circumstances, then she still counts as living there for tax purposes.

IRS Pub 17 states the following: "You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances, such as illness, education, business, vacation, military service, or detention in a juvenile facility. It must be reasonable to assume the absent person will return to the home after the temporary absence."

However, there is no specific bright-line test to what is a "temporary absence" or as to how long it can continue. Is 2 years really temporary? Who can say? Recognizing that due to COVID, during the past year or two it has been difficult for people to travel internationally, perhaps it is more reasonable to call 2 years temporary right now, but at some point it starts to look not so temporary. What is the plan for them to eventually return to your home?

So, you could take this position on your tax return by stating that your daughter did live with you for more than half the year. If you have already filed return stating the contrary, you would need to file amended returns. But be aware that by taking this position on your tax return you are taking the risk the IRS could challenge it. It is not cut and dried.

Second idea - since you and your wife have been physically apart for over two years, your wife could file Form 8332 to permit you to claim your daughter. This would concede that your wife and daughter didn't live with you (so it would not be compatible with the "temporary absence" concept above) but would allow you to claim her as a dependent anyway. It would allow you to get the Child Tax Credit for her, as well as the stimulus payments. So this might be another way to solve your problem. Also, if your wife will sign the Form 8332 for you, it is a more concrete claim to the credits. There is not the same risk of the IRS coming back to challenge it. 

I hope this information is helpful. Please feel free to post again if you have additional questions.