Claiming an adult child as a dependent on your taxes

— -- Your children will always remain in your heart. But if you're like most parents, you don't expect them to always remain in your house.

Alas, the prolonged economic downturn has forced thousands of young adults to move in with their parents until their job prospects improve. These multigenerational households must tackle a host of thorny issues, ranging from the allocation of chores to the rules for overnight guests.

With tax season approaching, a lot of parents are grappling with another issue: Can you claim an adult child as a dependent on your tax return? For 2011, each dependent reduces your taxable income by $3,700. For a family in the 25% tax bracket, that works out to a tax savings of $925, which buys a lot of groceries.

Sadly, the fact that you provide housing and sustenance for an adult child — or anyone else — doesn't automatically mean you can claim that individual as a dependent. Factors that affect whether an individual is a "qualified child" include:

•Relationship. The individual must be your child, stepchild, foster child, sibling, stepsibling or a descendant of one of those (i.e., a grandchild).

•Age. They must have been under age 19 at year's end, or under 24 if the child was a full-time student for at least five months of the year.

•Residence. The child must have lived with you for more than half of the year. There are some exceptions for children of parents who are separated or divorced.

•Support. The child cannot have provided over half of his or her own support during the year. To calculate how much you spend on support, you can include your child's college costs, food, clothing and medical and dental expenses. If your child is on your health insurance plan, you can include a portion of your premium, says Richard Rhodes, an enrolled agent in Hinckley, Ohio.

You can also include a percentage of your ongoing household expenses when calculating the amount you spend on support. For example, if five people live in your home and one is an adult child, you can include one-fifth of your utility bills, Rhodes says.

As long as your child's income doesn't exceed the amount you spent on support, and meets the other tests, you can claim the child as a dependent, says Terry Durkin, an enrolled agent in Burlington, Mass. For example, suppose your daughter graduated from college in May, found a job in September and earned $20,000. As long as the amount you spent on her support exceeded $20,000, you can claim her as a dependent, Durkin says. However, if you claim your child as a dependent, she can't claim a personal exemption on her own tax return.

Qualifying relative

The live-in adult child phenomenon isn't limited to recent college graduates. Thousands of adults who have been out of college for a few years have also been forced to move in with their parents because they lost their jobs, their homes or both.

If you're supporting an adult child who fails the age test, you may still be able to claim him or her as a "qualifying relative." Be advised, though, that the standard for claiming a qualifying relative as a dependent is much higher.

The qualifying relative must have gross income of less than the amount of the personal exemption. This income test prevents a lot of parents from claiming older adult children as dependents because even a part-time job will render the child ineligible, Durkin says.