Ask the Expert: Can son's premiums be deducted?

My 19-year-old son was a full-time student through May 2010. He's now taking time off from college, so he's no longer eligible for family coverage. He lives at home and will earn $7,900 this year. We pay more than $400 a month to continue his coverage through COBRA. We'll claim him as a dependent, and also plan to take the college tuition credit. Can we also deduct the COBRA premiums we pay for him? 

Only by claiming them as a medical expense -- and that may not help you, because you can only deduct medical expenses to the extent that they exceed 7.5 percent of your adjusted gross income.

The good news is that next year, your son will again qualify for family coverage in your plan. The new federal law requires all employer-sponsored plans to cover children until age 26, regardless of their student status, starting with the first open enrollment after Sept. 23, 2010. For many plans, that means Jan. 1, 2011.

You can claim him as a dependent for 2010 regardless of his income if he's younger than 24 and was a full-time student for at least five months of the year, says Michael W. Alderman, an East Meadow tax accountant.

As a married couple, you can also claim a college tuition tax credit worth up to $2,500 for his college tuition, provided your 2010 income is less than $160,000. (The credit phases out for higher earners, and isn't available to couples who make more than $180,000.)

A credit is better than a deduction. A $2,500 credit cuts your tax bill by $2,500. By contrast, a $2,500 deduction reduces your taxable income by $2,500; in the 25 percent tax bracket, it cuts your tax by $625.

The bottom line:  Health insurance premiums that aren't business-related are deductible only as a medical expense.

Click here for further information at Bankrate.com, and click here for  further IRS information.