Hosting an Exchange Student Can Earn a Tax Break

Charity can take many forms. For instance, you might donate money to a cause designed to help feed the hungry or to house homeless people. If the organization that is running the project qualifies as a 501(c)(3) organization under the tax code, the full amount of your contributions is generally tax- deductible within generous annual limits.

That’s a relatively common scenario. However, other types of tax-deductible contributions may go in a different direction.

Case in point: Suppose your local high school is searching for families willing to host a foreign exchange student for the upcoming year. You might be inclined to volunteer your home for this purpose. When you host a foreign exchange student, you’re eligible for a special tax deduction,

Unfortunately, you can’t write off the full amount of the out-of-pocket expenses you’re likely to incur. In fact, the amount of your deduction will probably be a veritable drop in the bucket of what you actually spend. Nevertheless, you’re supporting a good cause and you will derive some tax benefit for your generosity.

More details: If you itemize deductions, you may deduct from your federal income tax bill a charitable contribution of up to $50 per month for the qualified expenses of providing for a foreign exchange student. The following requirements must be met.

• The student must be in the 12th or a lower grade at a U.S. school and must attend school full-time.

• The student must live in your home under a written agreement between you and a “qualified organization” as part of the organization’s program to provide the student with educational opportunities.

• The student can’t be your dependent or relative. There’s no tax break for hosting your cousin’s child from overseas.

Furthermore, the deduction is available only for exchange student arrangements made through an organization qualifying as a nonprofit community chest, corporation, trust, fund, or foundation operated solely for religious, charitable, educational, scientific or literary purposes or to prevent cruelty to animals or children or foster national or international amateur sports competition; war veterans’ organization; or domestic fraternal society.

For these purposes, qualified deductible expenses include the cost of books, tuition, food, clothing, transportation, medical and dental care, entertainment and other amounts actually spent for the student’s well being. But you can’t write off depreciation in your home; the fair market value of lodging; and general household expenses such as taxes, insurance and repairs.

Be aware that no deduction is allowed if you’re reimbursed for any part of the cost of having the student reside with you.  So, if a local charity helps you out, you can’t claim any charitable deduction on your return,

Do you want to hear more? If you have any other questions, see your professional tax advisor.