When adult kids move back in (or never leave)

Feeling squeezed by adult kids living with you? Or, maybe you’re okay with it. One thing is certain, you’re not the only ones in your situation. Living with Mom and Dad is now the most common living arrangement for young adults, according to the not-for-profit Pew Research Center.

Remember when you were in high school and couldn’t wait to get out on your own? Maybe you planned to go to college and live in a dorm or get some roommates and have your own space? These days, the number of young people (age 18 to 34) who live with their parents is greater than the number of those moving out on their own… for the first time in 130 years.

Males are more likely to continue living at home (or move back) than females (35 percent for males, 29 percent for females). Of those who live with their parents, 19 percent are college grads, while 36 percent have less education. This is also not unique to the U.S. It’s even more widespread in Canada and the European Union.

Why is this happening?

Many people assume this is because of the recession of that started in 2007. Inflation-adjusted wages started falling in 1970, and employment rates for young adults in the last few decades have also declined, leading more young adults to return home. About one in three adult kids who live at home say they do so because finances forced them to. At the same time, the stigma of living with parents has eased.

Delayed marriage (or no marriage) is another factor. Just about one quarter of Millennials are currently married, compared to 36 percent of Generation Xers and 48 percent of baby boomers when they were the same age.

What do the parents think?

Many report that they’re okay with it. Many encourage kids to move home, to prevent themselves from being lonely if they are empty nesters, or because they see it as safer for the kids. Those who have mobility or health issues see it as beneficial for them to have the kids living at home. As for the kids, about three-fourths of them say they’re okay with it.

Overall, about 35 percent of kids who live at home pay rent (though that may mean a token figure and may not be consistent). Seventy-five percent help with groceries or utilities. And almost all do chores.

Making it work

For parents who had planned to downsize their homes or to retire, having the kids at home may mean delaying the plans. To keep from straining relationships, parents and kids need to agree on some parameters. For example:

• How will the kids contribute to the household?

• How long will you allow them to stay?

• What about rules regarding pets? Overnight visitors? Alcohol and tobacco use?

• Who will be responsible for the kids’ laundry?

• How will chores be handled?

While it may seem awkward to have rules for grown kids, in the long run it will make the situation more workable. If the kids are living at home now and it’s not working, it’s past time for a family meeting.

Do adult children or grandchildren qualify as tax deductions?

Probably not. Here’s what the IRS has to say.

A child under age 19 or a full-time student under age 24 will qualify as your dependent if you provide more than half of the child’s annual support (or if the child is totally and permanently disabled). He or she must also have lived with you for more than half the year. Days that the child is away at school or in the military count as days lived with you. If the individual qualifies as your dependent, that will give you a $4,050 exemption in 2016.

Generally, your married child can’t be your dependent if he or she files a joint tax return with his or her spouse. So let’s say your married daughter and her husband and infant child live with you and never pitch in a penny. But because they file a joint tax return and collect an Earned Income Credit for their child, you cannot claim them as legal dependents for tax purposes. There is an exception – if adult children file a joint return only to get a refund of taxes they actually paid (and do not get credits such as the Earned Income Credit). Ask your accountant to be sure.

What if you’re paying for your adult child to go to college? Depending on your income, if you pay the costs of higher education for your kids, you may qualify for an American Opportunity Tax Credit, a maximum of $2,500 per student. The credits phase out for upper-income taxpayers. There may also be a deduction for qualified tuition and fees expenses under the Protecting Americans from Tax Hikes Act. For 2016, this is $4,000 or $2,000, depending on the parents’ income. Also you can’t claim the credit if you get other higher education tax credits.

If you pay student loan payments for your child, you can deduct interest up to a $2,500 maximum in 2016, even if you don’t itemize deductions.

If your health insurance plan covers dependents, your children can stay on your plan until they reach age 26, even if they get married, adopt a child, start or leave school, and aren’t your dependent.