I received a call today from a woman wanting to know if her son can claim her as an exemption on his tax return. The answer is yes, provided she meet the following requirements:
Qualifying relative test:
- Not a qualifying child
- Member of household or relationship test
- Gross income test
- Support test
Being an elderly parent, she met the first two tests. As for the other two tests, there are caveats. Care must be taken in determining the correct numbers. Gross income must be under $3700, and support must be at least 50%.
Gross Income Test
Gross income includes all income in the form of money, property and services that are not exempt from tax.
Tax exempt income such as Social Security and municipal bond interest is NOT included in gross income.
Rental Income – Count the total rents received, but don’t deduct expenses such as property taxes, repairs or interest paid.
Business Income from manufacturing, mining or merchandise – Total net sales less cost of goods sold.
Gross income also includes a partner’s share of gross partnership income and all taxable unemployment compensation and certain scholarships and fellowship grants.
To figure whether you have provided more than half of their support, compare the amount you contributed to the entire amount the person spent on themselves. Count the income the person received from all sources and include tax-exempt income, savings, and borrowed amounts used to support that person. But don’t the amount they didn’t spend.
Let’s say your mother received $2200 in social security benefits and $400 in interest. She put $200 in a savings account. Even though she received $2600 for the year, she only spent $2400 on herself. As long as you spend at least $2400 for her support and no other support was received, you have provided more than half of her support.
So what counts for support? Total support includes money spent on food, lodging, clothing, education, medical and dental, recreation, transportation and similar necessities.
Multiple Support Agreement
So you and your siblings are splitting the cost of paying for a nursing home. Combined it is more than half the parent’s support. Who gets the exemption?
When this happens, you can agree that anyone of you who provides more than 10% of the person’s support, but only one, can claim the exemption. Each of the others must sign a statement agreeing not claim the exemption that year. The person claiming the exemption must keep theses signed statements for his or her records. A multiple support declaration identifying each of the others who agreed not to claim the exemption must be attached to the return of the person claiming the exemption. Form 2120 can be used for this purpose.