Complex Child Tax Credit Qualification

[MDT3]

My daughter is 41 years old with severe medical condition which prevents her from gainful employment.  She is divorced & is custodial parent of 2 children ages 16 and 15.  I provide ~85% support for all 3, daughter's ex-husband provides other ~15% via court-ordered child support.  I claim all 3 as Dependents on my tax return, but Child Tax Credit is complicated due to the "lived with you" criteria in qualifications language.  My home is too small  for my daughter & 2 grandchildren to live with me at same address, so I bought a house for them to live in.  I own the house they live in & pay 100% of home expenses, plus ~85% of daughter & grandchildren living expenses.  However, they do not live at same address so I answer "No" to the "Live with you" question & only get the lower Qualifying Dependent credit for all 3 of them.  Since I pay virtually all expenses for the roof they live under, even though not same address as me, seems like I should get full Qualifying Child credit for the 2 grandchildren under age 18, with Qualifying Dependent credit for my adult child.  Appreciate if anyone can help me figure this out - am I able to state all 3 "lived with me" for tax purposes?

[xmasbaby0]

Please see this

https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/dependent-2021-live/L0n7tISmk_U...

You can say that your grandchildren live with you since you are paying for their support and you are closely related.  You should be getting the child tax credit if you have had income earned from working.   

Did the same thing happen in 2021?   If so, you should amend 2021 so that you can get the child tax credit for 2021 too.   How long has this situation gone on?   You can amend as far back as 2019 for a better refund.

[MDT3]

Thank you very much @xmasbaby0 for your quick response.  I bought the house for my daughter & grandchildren to live in late 2018, so yes condition has existed since then but didn't really see a discrepancy in my taxes until 2021 filing last year, when standard deduction went up dramatically & exceeded Schedule A itemized deductions I had always filed before then.  I had a large income fluctuation in 2021 & had to make a bulk IRA contribution to avoid owing taxes, so I attributed the discrepancy to that.  The income fluctuation did not re-occur in 2022 but the apparent shortfall in tax withholding did, which prompted me to dig deeper.  Once I realized what the cause was I felt I was answering "lived with you" question incorrectly as you advised, however I have not been able to find a specific example like my situation among the many listed in IRS Pub 501, so was not sure.  I will re-examine tax filings back to 2019 to determine impact & file amended returns if appropriate.  Thank you!

[Hal_Al]

@xmasbaby0  said "You can say that your grandchildren live with you since you are paying for their support".

 I don't think that's right.  What's your reference for that? The link you provided only describes claiming a Qualifying relative.  Poster already indicates TT is giving him the other dependent credit. He wants the CTC and EIC.  I don't think he qualifies. 

[xmasbaby0]

@Hal_Al @MDT3    I may have mis-read your information.   If the grandkid are not living with you in your house, then you can claim them for the credit for other dependents------the $500 credit----but not for the child tax credit.  The child tax credit is different.   Were they living with you at any time in 2022?  or 2021?   Or were they always living in the other house?

[MDT3]

@Hal_Al @xmasbaby0 , thank you for your feedback but you didn't misread.  My daughter and grandchildren are living in another house, different physical address than where I live & have been since 2018, solely because where I live is not large enough to accommodate them (otherwise they would be at same address with me).  Premise of the tax law assumes one living in another house would be paying separate mortgage or rent expenses on their own, but this is not the case here.  I own the house daughter & grandkids are living in free & clear, no mortgage, I pay all taxes, upkeep, utilities, etc.  I also pay 85% of daughter & kids living expenses.  My adult daughter & her children pay no rent to me or anyone else for occupying the property.  Given the financial support facts, it does not make sense that I could only claim the grandchildren for Child Tax Credit if we live at the same physical address - why would that matter?  Purpose of the qualification test would seem to be whether I pay for their housing and living expenses, which I do.  I can find no rationale for why same physical address would qualify while separate address would not, with all other financial support factors being exactly the same.  Definition of "living with you" is ambiguous in the tax law verbiage, & the basis for my original question.

[Hal_Al]

Q. Am I able to state all 3 "lived with me" for tax purposes?

A. My opinion is No. 

You are able to claim them as qualifying relative (other) dependents, but not as qualifying children. 

Your situation (children and and grandchildren living in a 2nd house you own) is not that uncommon.  If anybody claiming that as "living with them", they haven't made it known in this forum.  You have the option of moving in with them, into the larger house. Then they would be living with you. 

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. They are interrelated but the rules are different for each.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

.A child closely related to a taxpayer can be a “Qualifying Child (QC)” dependent, regardless of the child's income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or  is totally & permanently disabled
2. He did not provide more than 1/2 his own support
3. He lived with the relative (including temporary absences) for more than half the year
4. He is younger than the relative (not applicable for a disabled child)
5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child (this essentially means that you have the parent’s permission to claim the child, if the child also lived with the parent more than half the year)
6. If the parents of a child can claim the child as a qualifying child but no parent so claims the child, no one else can claim the child as a qualifying child unless that person's adjusted gross income (AGI) is higher than the highest AGI of any of the child's parents who can claim the child.

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

[NCperson]

I appreciate this is an old thread, but I have been trying to easily reconcile who is a Qualifying Child, AND eligible for CTC; here is what I can up with (and the rules for HOH are even more complicated to reconile)

Qualifying Child: (must meet all criteria)

1)Age Test: Under 19 years old (or under 24 and a full-time student) or disabled

2)Relationship Test: Bio, step or foster child, or bio, step or half sibling, incl. descendants of these children or these siblings

3)Residency Test: Child lived with taxpayer for at least six months of the year

4)Support Test: Child did not provide more than half of their own support; not married

5) Citizen / Resident test: Must be US Citizen or Resident Alien or resident of Canada or Mexico

To be eligible for the Child Tax Credit, these criteria must be met

• Meet all criteria of Qualifying Child; plus:
  • Age Test: under 17 years old
  • Resident test: Must Be a US Citizen or Resident Alien
• Have a Social Security Card eligible for employment

So while indivuals ages 17-23 can be a Qualifying Child and they can reside in Mexico or Canada, they are not eligible for the child tax credit; however they are eligle for the up to $500 other dependent tax credit.