Claiming a relative as a dependent
Q: My sister has been living with us for about a year. Is it possible to claim her as a dependent and what are the requirements?
A: There are a series of tests which must be met in order for you to claim an individual as a dependent on your tax return.
1. The first part is the support requirement, under which you must provide more than 50% of the individual’s support for the year. Support is measured by amounts spent for the individual’s support and by the value of support items provided. For example, say $6,000 is spent on the support of an individual who lives in your home. You provide $2,500 of the $6,000. Assume as well that the rental value of the housing you provide is $2,000 for the year. Under these facts, the total support for the individual is $8,000 (the $6,000 actually spent plus the value of the housing provided), and you have provided $4,500 ($2,500 in cash expenses plus the housing). Thus, you would meet the support test.
“Support” includes the cost or value of basic needs such as food, clothing, shelter, insurance, education, etc. but isn’t limited to “necessities” in a narrow sense of the term. IRS says “recreation” is a necessity and the Tax Court takes an expansive view, including such costs as summer camp and a daughter’s wedding.
A scholarship received by a full-time student and applied toward his education is not considered support if the individual is your child. So, for example, if you cover $4,000 out of $6,000 of a child’s support costs and he receives a $10,000 college tuition scholarship, you can still pass the support test. Total support is not increased to $16,000 by the scholarship.
The other five parts of the test are simpler:
2. Relationship or member of household. The individual must either be a relative of yours or a member of your household. The list of qualifying relatives is fairly broad, including parents, grandparents, children, grandchildren, brothers and sisters, aunts and uncles (blood relations), and nephews and nieces. Children-, parents- and siblings-in-law qualify as well, as do stepchildren and stepparents. An adopted child or foster child can also qualify.
3. Gross income. The individual cannot have gross income equal to or above the exemption amount ($3,500 in 2008 and $3,650 in 2009).
4. Joint return. The individual you are seeking to claim as your dependent cannot be filing a joint return for the year. However, if the only reason a joint return is filed is to get a refund and no return is otherwise required, this test is satisfied.
5. Citizenship. The individual must be a U.S. citizen or resident. Residents of Canada and Mexico can also qualify.
6. Not a Qualifying Child Test. The relative must not be a qualifying child of any other taxpayer for the year.
Having someone qualify as your dependent doesn’t always result in tax savings. From the dependent’s standpoint, he loses his personal exemption on his own return and may be limited to a smaller standard deduction than non-dependent taxpayers. However, you cannot avoid these negatives simply by “electing” not to claim the dependent. To avoid them you would have to fail one of the above tests, e.g., adjust the amount of support you provide so it fails to exceed 50% of the total.
Additionally, from your standpoint, if your adjusted gross income (AGI) exceeds a certain amount, the tax benefits of the exemption are reduced (eliminated at the highest AGI levels). This reduction starts when AGI is over $239,950 in 2008 ($250,200 for 2009) for married couples filing jointly; the figure is $199,950 for 2008 ($208,500 for 2009) for taxpayers who qualify as head of household.
