Is my child a dependent?

[GreggP]

I am trying to determine if my daughter is a dependent. According to these rules she is a qualifying child but not a qualifying relative.

Qualifying Child

Relationship — the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or step-sibling, or a descendant of one of these.

she is my and (my wife's)  biological daughter

Residence — has the same principal residence as the taxpayer for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents, kidnapped children, temporary absences, and for children who were born or died during the year.

she lived at our home from Jan 1, 2020 to July 8, 2020, so just over 6 months

Age — must be under the age of 19 at the end of the tax year, or under the age of 24 if a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year.

she turned 23 in April 2020 and was a full-time student from Jan - May (her final semester at the university where she earned her Bachelors degree)

Support — did not provide more than one-half of his/her own support for the year.

While living at home, we paid all of her living expenses, including food. We also paid for her tuition. When she moved on July 8th, we drove her and her belongings to Cambridge, MA for her new job. We paid for all the moving expenses, including renting a U-Haul trailer. She has been on her own and has earned a decent salary since starting this job. If you consider all of her living expenses over the last year, how do we compare how much it was while she was home versus while she is living in her new apartment?

Qualifying Relative

You can claim a child, relative, friend, fiancé (etc.) as a dependent on your 2020 taxes as long as they meet all of the following requirements :

• You provided more than half of their financial support. 
• They made less than $4,300 in gross income during 2020 unless they are a qualifying child.
• They live with you or they are related to you. 
• They are a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren't (or won't be) claimed as a dependent by someone else.
• They aren’t filing a joint return with their spouse.
• You are not being claimed as a dependent on someone else's return.

 She has earned more than $4,300 in gross income during 2020, so she does not meet the requirements for a qualified relative.

[Hal_Al]

She cannot be a qualifying relative because "she earned a decent salary since starting her MA job".

It's clear that meeting the qualifying child rules hinges on the support test. 

Q. "How do we compare how much it was while she was home versus while she is living in her new apartment?"

A. You do the math. The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. Moving expenses and tuition also count as support.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

A qualifying child must also meet theses rules:

• They are a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren't (or won't be) claimed as a dependent by someone else.
• They aren’t filing a joint return with their spouse.

[DanaB27]

Please see this Worksheet for Determining Support to help you to see if your daughter provided more than half of her own support.

You daughter seems to have met all the other requirements for qualifying child since she was a full-time Student for 5 months. Therefore, you will only need to calculate if she provided more than half of her own support.

[Hal_Al]

If she is your dependent, you will get the $500 other dependent credit and maybe the tuition credit.

If she is not your dependent,  she  will get the $1800 stimulus/rebate credit and maybe the tuition credit.

[GreggP]

While working through the step-by-step method in TurboTax Deluxe, our refund increased by $1,000 if she's listed as a dependent. She also qualifies for the American Opportunity Credit (based on how much we paid for her tuition?), which comes to $2,237. So, if she's our dependent our refund increases by $3,237.

If she is not our dependent, I didn't find any way to get a credit or deduction for her tuition, even after entering info for Form 1098-T.

[npierson7]

You most likely can claim her as your dependent. The fact she earned more that $4,300 doesn't disqualify her. Please you the Worksheet for Determining Support to make sure you provided more than half of her  support and if you did, you can claim her as a dependent. 

[Hal_Al]

She must not have enough tax for the non refundable portion of the credit to do her any good.

There are restrictions on a student, under 24 qualifying for the non refundable portion of the AOC. She must not only support herself, but more than half her support must be from earned income.  

[Hal_Al]

Clarification on  npierson7's answer: it's not that you provided more than half of her  support; it's that she didn't provide half her own support.

There are two types of dependents, "Qualifying Children"(QC) and standard ("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. 

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.

[GreggP]

Using the worksheet for determining support...

Under the section for determining expenses for the entire household, it says to enter the fair rental value of the home. Checking around the neighborhood, a nearby 3bd/2.5ba/1750sqft house rents for $2375/month. So maybe our 4bd/2ba/2700sqft house would rent for $2500/month?

Since she lived with us for just over 6 months, I assume I would only enter $2500x6 for the fair rental value, right?

There's also a line for the total amount of utilities. The amount entered here should be just for the 6-month term (January - July), right?

[Hal_Al]

Q. Since she lived with us for just over 6 months, I assume I would only enter $2500x6 for the fair rental value, right?

A. Yes, plus the 8 days in July.

Q. There's also a line for the total amount of utilities. The amount entered here should be just for the 6-month term (January - July), right?

A. Yes

[GreggP]

I guess it really comes down to line item #2. I assume this includes the total amount she had to spend to live during all of 2020, not just when she lived at home. So if her rent in MA is $1200/month and spends approximately $200/month on food, the amount she spent from her funds listed on line 1, would be $8,400.

Then I compare that to line 20. If line 20 is greater than $8,400, then we meet the support test. 

Is this correct?

[Hal_Al]

Q. Then I compare that to line 20. If line 20 is greater than line 2, then we meet the support test.  Is this correct?

A. Yes, but your $8400 is probably not correct for line 2 as it only includes food & rent for 6 months.  Don't forget utilities, other household expenses, insurance, clothing,  education,  medical, transportation,  entertainment and recreation.