November 8, 2005
TAX CREDIT FOR HOSTING FOREIGN STUDENT
By: Judith Lohman, Chief Analyst
You asked for an explanation of an income tax credit for a family hosting a foreign exchange student; whether there is a proposal to increase the credit; and, if so, the status of that proposal.
TAX BENEFIT FOR HOSTING A FOREIGN EXCHANGE STUDENT
Under certain conditions, a taxpayer who hosts a foreign exchange student can deduct from his federal income tax as a charitable contribution up to $50 in qualifying expenses per month for maintaining the student (IRC § 170(g)). The student:
1. must be in the 12th or a lower grade at a U.S. school and must attend school full-time,
2. must live in the taxpayer's home under a written agreement between the taxpayer and a “qualified organization” (see below) as part of the organization's program to provide the student with educational opportunities, and
3. cannot be the taxpayer's dependent or relative.
The deduction is available only to exchange student arrangements made through an organization that qualifies as a (1) 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; (2) war veterans' organization; or (3) domestic fraternal society.
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. Depreciation on the taxpayer's home; the fair market value of lodging; and general household expenses, such as taxes, insurance, and repairs, are not deductible. A host receiving reimbursement for any part of the cost of having the student live with him is ineligible for the deduction, as is a host participating in a mutual exchange program under which he hosts a student in return for the host's child living with a family in a foreign country.
Full details of the foreign exchange student deduction are available in IRS Publication 526, Charitable Contributions.
PROPOSED INCREASE IN EXCHANGE STUDENT MONTHLY DEDUCTION LIMIT
Only one bill has been introduced in the current Congressional session to increase the limit on the charitable deduction for maintaining a foreign exchange student. H.R. 1504, “The Youth Exchange Support Act of 2005,” (copy enclosed) would increase the monthly deduction limit from $50 to $200 for the 2005 tax year and, starting with the 2006 tax year, would index the limit to a cost of living adjustment. Representative Rob Bishop of Utah is the bill's principal sponsor. It was referred to the House Ways and Means Committee on April 6, 2005. As of the date of this report, there has been no further action on this bill.