This article will discuss the requirements to claim a relative as a dependent, items considered as support and items not considered as support. It also discusses multiple support agreements.

Requirements for claiming an exemption. ALL of the following must be met or the exemption will be disallowed by the IRS.

1. Relatives other than children (parents, including in-laws, siblings, grandchildren, great-grandchildren, grandparents) do NOT have to live in the same residence as the taxpayer claiming the exemption. For example, a parent may live in their own residence, a retirement home, or nursing home.

2. The taxpayer claiming the exemption must contribute more than 50% of the relative’s support (but see exception for multiple support agreement discussed below). If the relative lives in their own home, you must reduce the amount the relative pays to determine if you provide more than 50%. Support includes food and lodging in the taxpayer’s (or the relative’s own home, nursing or retirement home), mortgage payments, fair rental value of a room, home or apartment [fair rental value is the amount you could expect to receive from a stranger. It includes the value of furnishings, appliances, and utilities but any cash given or amounts paid for hazard insurance premiums, mortgage payments, and repairs reduce the fair rental value]. If the relative and the taxpayer supporting him or her live in the same household, the fair value of lodging the relative provides for the taxpayer claiming the exemption, reduces the amount of support provided to the relative. Support also includes medical care, clothing, education expenses, the cost of a car (must be registered in the relative’s name), transportation and out-of-pocket expenses for a car registered in the provider’s name, recreation and equipment for athletic events, and entertainment. If a lump-sum amount is paid to a nursing or retirement home for a relative, the amount must be prorated over the relative’s expected life based on mortality tables. A relative’s amount spent for their own support includes amounts spent from their savings, pensions, taxable portion of social security, other government benefits, and other taxable income if THEY SPEND it for their OWN support [J.K. Lasser’s Your Income Tax, 2016].

Example

Mark provides $8,000 support for his disabled sister who lives in her own home which has a fair rental value of $15,000 per year. His sister uses $3,000 of Mark’s money to pay real estate and school taxes and $5,000 for food, insurance, and utilities. She spends $4,000 of her $9,000 non-taxable social security for travel and saves the remainder. She has no other income and receives no other support. Mark’s sister’s contribution to her own support is $11,000:

$15,000 fair rental value of house, less $8,000 from Mark	$7,000
Social Security spent for travel	$4,000
Sister’s contribution for her support	$11,000

Mark‘s contribution of $7,000 is more than half of his sister’s support, so he can claim her as an exemption provided he meets the other tests.

3. The taxpayer claiming the exemption must report the relative’s social security or other TIN (for resident and non-resident aliens) on the tax return. If this is missing, the IRS will disallow the exemption.

4. If the relative is married, he or she cannot file a joint return with their spouse unless there is no tax due and the return is filed to obtain a refund.

5. The relative must be a U.S. citizen or resident alien, a resident of Canada or Mexico, a U.S. national who owes allegiance to the U.S. (one born in American Samoa or the Northern Mariana Islands who is not a naturalized U.S. citizen) [J.K. Lasser’s Your Income Tax, 2016].

6. The relative’s gross income subject to tax cannot exceed $4,000 (this is the amount of an exemption for 2015. The amount for 2016 will be announced by the IRS towards the end of the year). Social Security is treated as gross income only to the extent it is taxable.

Items not considered support [J.K. Lasser’s Your Income Tax, 2016]

• funeral expenses
• federal, state, local taxes and social security taxes paid by the child from their OWN income.
• Medicare Part A and B. But the Tax Court stated that Medicaid is also NOT considered as support
• Medial insurance benefits received by the child
• Scholarships, if the child is a full time student for at least five months during the year. If the child does not meet this requirement, the scholarship will be considered support provided by the child. ROTC payments and those made under the War Orphans Educational Assistance Act are considered scholarships and not support. State aid paid to a disabled child for education or training, including room and board, is a scholarship.

Multiple Support Agreement

When more than one person provides the support of a relative and meets all the other tests, a multiple support agreement allows one of the persons to claim the relative as an exemption. The following requirements apply:

• the total support provided by all persons for the relative’s must exceed 50%.
• Each one could have claimed the exemption except they did not provide more than 50% of the relative’s support.
• the person who provides more than 10% can claim the exemption.
• the persons who do not, must waive their right to claim the exemption by attaching Form 2120, Multiple Support Declaration to their tax return.

Example 1

Joe, Grace and Charlotte’s father lives in a retirement home and his support was provided by:

	Amount	% of total
Father	$25,000	52
Joe	$12,000	24
Grace	$8,000	16
Charlotte	$4,000	8
Total support	$49,000	100

NONE of the children can claim their father because he provided more than 50% of his own support.

Example 2

Joe, Grace and Charlotte’s father lives in a retirement home and his support was provided by:

	Amount	% of total
Father	$20,000	44
Joe	$12,000	26
Grace	$8,000	17
Charlotte	$6,000	13
Total support	$46,000	100

All the children together provide 56% of their father’s support and everyone provides more than 10%, so ANY of the children may claim their father as an exemption. They must agree among themselves who will claim him. The ones who do not claim the exemption must attach Form 2120 to their return.

Example 3

Joe, Grace and Charlotte’s father lives in a retirement home and his support was provided by:

	Amount	% of total
Father	$20,000	46
Joe	$12,000	27
Grace	$8,000	18
Charlotte	$4,000	9
Total support	$44,000	100

All the children together provide 54% of their father’s support but only Joe and Grace provide more than 10%. Since Charlotte provides only 9%, she cannot claim the exemption.  Either Joe or Grace may claim their father as an exemption and must agree among themselves who will claim him. Whichever one does not claim their father must attach Form 2120 to their return.