Mo' Beer Money for College: Tax Secret for Renters

It's late February and you still have a couple of months left at school, but you have blown all your extra loan money on beer and fast food. Call mom and dad? Well...probably even if you do what I tell you anyways. They don't need to know you figured this out do they? I'm going to share with you something that I learned from a professor when I was in college. It is something I have been passing on ever since then to other fellow college students so they can try to get themselves a little bit of extra beer money after the New Year. College kids are most likely to qualify because of their low incomes, but this is certainly not limited to them. I was going to wait until after the first of the year to post this, but I think that it would be beneficial now so you can plan a head a little bit.

Before we get started I want to say that this is something I only have experience with for Michigan. Tax laws vary from state to state so this tip may not apply to your current tax laws. Some states don't even have state income taxes so this would not benefit you. I am not guaranteeing anything here, but I will point you in the right direction to see if it can benefit you as a college student, or anyone that qualifies. One other thing that I need to mention is that you cannot be claimed as a deduction on another individual's tax form to allow yourself this benefit. If your parents claim you on their taxes this will not help you.

Do you pay rent? Well if you do there just may be some extra refund money waiting for you this year. There also may be some extra refund money waiting for you from last year and the year before that. You see there is a tax form that homeowners fill out to get a deduction for their property taxes. It is commonly called a Homestead Property Tax form, or just plain Property Taxes. (This is a state tax form. It will not be available on the federal site). In Michigan this form is the 1040-CR (links to forms are in the "Additional Resources" section at the end). In your state it will likely have a different form number attached to it. No worries though because it should be on your state's property tax form as it is in Michigan. This is not a stand alone form either. In Michigan it must be sent in combination with your individual state tax form.

OK...enough of the formalities here. Let's get you college kids some extra beer money. In Michigan, on the Homestead/Property Tax form there is a section for renters. Since most of us in college probably didn't own homes we never really knew about it being there. I never had a clue until one day my professor showed it to me after one of my finance classes. On the form it has a little worksheet for you to figure out how much rent you paid and some formulas you need to calculate in order to show an amount you can get credit for. Here is a hypothetical example based on the 2005 Michigan 1040-CR:

1. A box will have you input Rent Paid in 2005: ($10,000)

2. They will ask you to multiply that total by 20% (0.20) which would equal $2000.

3. They then ask you to list all your income and multiply it by 3.5% (.035). As a college student it is likely quite low. Let's say you made $10000. After the multiplication here we end up with $350.

4. Now they tell you to subtract that income number ($350) from that 20% number from earlier. This would be $2000-$350=$1750.

5. Next they want you to do even more math. It's not hard. They want you to take that number from the last step (($1750) and multiply it again by 60% (0.60). $1750*0.60=$1,050. The $1050 number is now the number you use the rest of the way. (The maximum that number could be in Michigan for 2005 was $1200.)

6. We are done with that form now. That number gets pulled into your individual income tax form and is used there. I filled both forms out myself to see what the end result would be if you made $10,000 with no other weird stuff going on you have to account for. I also assumed that you had taxes taken out of your paychecks all year and didn't owe any money. With this all completed I deducted that your refund for just your STATE income taxes in this scenario would be approximately $1100!

That friends is a serious haul right there for state taxes considering that $10,000 only required you to pay $265 total to the state for the year. So basically you got over $800 extra back just for filling out the Property tax form. That's an extra 40 cases of domestic beer for you this year!

Two more things I want to touch on. Did you rent and have low income for years before this in college? No worries. You can re-file your taxes for this correction up to 4 years prior to their due date of April 15th. In Michigan the re-file papers are called the 1040-X. The first year I did this at college I re-filed 2 prior years and got an extra $1400 out of the deal on top of the $1000 I was already getting back. It was a very fun semester that year in college.

The other thing I need to mention is that if you are on a lease with others you cannot claim 100% of the rent paid by all of you unless you know for certain that they are not going to be claiming it on their tax return as well. If you have one other person on the lease you can both claim 50% of the total rent paid that year.

That may have all seemed confusing to you, but it really isn't difficult at all if you have the tax forms sitting in front of you. Everything is explained very well right on the form and the only thing you will need is your W-2s and remedial math skills. I hope everyone has this tax refund opportunity in their state like we do in Michigan. I'll be waiting for my thank you beers. Cheers.