Daughter claimed herself & her daughter but lived with parents

[AZ-Tax]

I get a little confused. Can parents still claim the daughter who already claimed herself along with her daughter for EIC purposes yet parents provided for over 50% of their support?

[David1980]

I think you know the answer, but I would add that it gets more complicated. The parents say that they provide more than 50% of the daughter's support, but don't be surprised if the daughter disagrees. In the disputed cases you often see the parents putting high values on things like housing, much higher than say what someone could rent an equivalent room for in the area while minimizing or flat out ignoring things like education costs paid by a student through student loans. The children do the exact opposite, minimize the value or not consider it at all of the housing provided by the parents.

The truth is usually somewhere in the middle. Is this person a student with student loans? If so, that tips things in the daughter's favor as far as her not being a dependent. You could also look at things like the daughter's available income and loans vs. parents income. If a daughter makes $15,000 per year, is taking out $10,000 per year in student loans, and the parents make $40,000, it would be difficult to argue that the parents are providing over half the support. If the daughter makes $5,000 per year, has no student loans or loans of any sort, and the parents make $100,000 per year it would be much more likely the parents are providing more than half the support.

When it isn't blatantly obvious, there is a worksheet in IRS publication 501 that you can use to determine support. Worksheet 2, "Worksheet for Determining Support".

Keep in mind that the granddaughter isn't relevant in determining the daughter's support (other than it perhaps spreads out parents support more reducing how much they provide to daughter?) The parents could provide 100% of support to the granddaughter and if the daughter provides more than 50% of her own she can claim the granddaughter.

Of course, even if you determine that the daughter can't claim herself, what exactly do you do? Most families that still live together don't typically want to fight over an exemption - it isn't worth that much to them. What I've seen done sometimes, if the exemptions are worth more to the parents than to the daughter would be for the parents to pay the daughter what she would get by claiming herself in agreement that the parents will claim the daughter. Of course, such agreements don't change tax law, but nothing says a taxpayer that could claim a dependent is forced to claim that dependent? (And I assume you aren't the preparer of the daughter's return.)

[Burke]

I find most people feel that they should be able to claim someone merely because they live with them, and on that fact alone. They are in no way familiar with all these rules regarding support, etc. Neither are the potential dependents who live there. And in some states, dependents which are claimed by others can themselves claim their own exemption as well. I knew a set of grandparents who had legal custody of their grandchild (parents deceased). Even though the grandchild received Social Security, Medicaid and income from a trust fund for all the child's expenses plus a support stipend to the custodians, they filed their own return and claimed the child every year. After all, nobody else was claiming her.....