New Dependent


M

Mark1154

My 90 yr-old Mother-in-Law has come to live with us full time. For
several months now we have taken care of her from afar, taking her to
doctor's appointments, food shopping, etc and since she's just lost
her 90 yr-old companion we felt she could not live alone. What tax
benefits might there be for us in this situation? What is the criteria
for claiming a dependent and how long can I claim her for 2008 since
our caring for her has covered several months?
 
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D

D. Stussy

Mark1154 said:
My 90 yr-old Mother-in-Law has come to live with us full time. For
several months now we have taken care of her from afar, taking her to
doctor's appointments, food shopping, etc and since she's just lost
her 90 yr-old companion we felt she could not live alone. What tax
benefits might there be for us in this situation? What is the criteria
for claiming a dependent and how long can I claim her for 2008 since
our caring for her has covered several months?
Note: If you are unmarried, you could qualify as head of household as a
parent isn't required to live with you if you provided funds (more than
50%) for his/her household.

There are 5 tests for dependency:
- Relationship: Pass.
- Citizenship/residency: probably a pass. Unclear.
- Joint return: Implied pass. It appears she's not currently married.

- Gross Income: She must make less than the dependency exemption amount.
Note that Social Security doesn't count (as long as other income isn't over
$25k).
- Support: YOU must provide 50%+$1 of her support for the year.

The last two are often the disqualifiers for elderly relatives.
 
M

Mark Bole

"Taking care" means little -- who was *paying* for the doctor's
appointments, the food, etc? If this is early December, then "several
months" implies September or so when this began.

Couldn't she have just called a taxicab to take her shopping and to the
doctor? (Not necessarily a tax issue, just curious).

Who was paying for her shelter before that? Did she own her own home?


There might be some, but if you can claim you MIL as a dependent, there
will be tax *disadvantages* for her (whether you actually claim her or not).



There is no such thing as "partial dependency". You look at the entire
calendar year, and then look at "more than half". Dependency is all or
nothing, no pro rata.

Note: If you are unmarried, you could qualify as head of household as a
parent isn't required to live with you if you provided funds (more than
50%) for his/her household.
The OP said "Mother-In-Law". That implies the OP is married.
There are 5 tests for dependency:
Well, not really. There are four tests:

1) qualifying child or qualifying "relative"
2) U.S. citizen or North American resident
3) did not file joint return (some exceptions apply)
4) the *taxpayer* is not a dependent (i.e. dependents cannot have
dependents)

- Relationship: Pass.
- Citizenship/residency: probably a pass. Unclear.
- Joint return: Implied pass. It appears she's not currently married.

- Gross Income: She must make less than the dependency exemption amount.
$3,500 for 2008. This includes taxable pensions, retirement plan
distributions, interest, capital gains, taxable state tax refunds, etc.
- Support: YOU must provide 50%+$1 of her support for the year.
If the OP only got involved as of September, it's not likely they
provided more than half of the support for the entire year.

-Mark Bole
 
B

Bob Sandler

- Joint return: Implied pass. It appears she's not currently married.

It's not so clear that she passes the joint return test for
2008. The OP said "she's just lost her 90 yr-old companion."
If that means her husband died in 2008, she would probably
be filing a joint return for 2008, which would disqualify
her as a dependent for this year.

Bob Sandler
 
P

Paul Thomas, CPA

Mark1154 said:
My 90 yr-old Mother-in-Law has come to live with us full time. For
several months now we have taken care of her from afar, taking her to
doctor's appointments, food shopping, etc and since she's just lost
her 90 yr-old companion we felt she could not live alone. What tax
benefits might there be for us in this situation? What is the criteria
for claiming a dependent and how long can I claim her for 2008 since
our caring for her has covered several months?



There's probably no tax benefits available to you for 2008. Most likely she
doesn't meet the minimum to establish her being a "qualified relative", as
one of the qualifiers is being a member of your household for the entire
year. Talk to your tax advisor, now or during tax season, to get a better
understanding of the rules on qualified relative. Also take a look at
Publication 501 here: http://www.irs.gov/publications/p501/index.html so
you'll have some basis of understanding of the issues and then get answers
to questions specific to your situation from your tax advisor.

Chances are that the better possibility to claim her falls to 2009 or
beyond.
 
P

Phil Marti

There's probably no tax benefits available to you for 2008. Most likely
she doesn't meet the minimum to establish her being a "qualified
relative", as one of the qualifiers is being a member of your household
for the entire year.
I think you missed the fact that she's OP's MIL, thus there's no requirement
that she be a member of the household at any time.
 
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S

Seth

It's not so clear that she passes the joint return test for
2008. The OP said "she's just lost her 90 yr-old companion."
If that means her husband died in 2008, she would probably
be filing a joint return for 2008, which would disqualify
her as a dependent for this year.
If her income is low enough to qualify as a dependent, there's
probably no benefit to her for filing a joint return.

Seth
 
D

D. Stussy

Mark Bole said:
The OP said "Mother-In-Law". That implies the OP is married.
No. It implies that the OP WAS married at some point. The OP might not be
currently married (but could be divorced or widowed). Divorce or death
does not break the relationship for tax purposes. "Living with us" could
mean the OP and his current spouse, while the MiL is a prior spouse's
parent. ASSUME NOTHING.
Well, not really. There are four tests:

1) qualifying child or qualifying "relative"
2) U.S. citizen or North American resident
3) did not file joint return (some exceptions apply)
4) the *taxpayer* is not a dependent (i.e. dependents cannot have
dependents)
Your #4 is not in statute.
amount.

$3,500 for 2008. This includes taxable pensions, retirement plan
distributions, interest, capital gains, taxable state tax refunds, etc.


If the OP only got involved as of September, it's not likely they
provided more than half of the support for the entire year.
I don't see how you conclude that several = 3. Several is a small number -
single digits, but more than 3. It can be as high as 9. If it's 100%
support for 6+ months, that could be enough.
 
D

D. Stussy

Bob Sandler said:
It's not so clear that she passes the joint return test for
2008. The OP said "she's just lost her 90 yr-old companion."
If that means her husband died in 2008, she would probably
be filing a joint return for 2008, which would disqualify
her as a dependent for this year.
One does not refer to a spouse as a companion.
 
A

Arthur Kamlet

Your #4 is not in statute.

2007 Pub 501 is pretty sure that dependents cannot have dpendents.

Any idea where that notion arose?


http://www.irs.gov/pub/irs-pdf/p501.pdf

Page 9

Begin Quote:


Dependent Taxpayer Test

If you could be claimed as a dependent by an-
other person, you cannot claim anyone else as a
dependent. Even if you have a qualifying child or
qualifying relative, you cannot claim that person
as a dependent.
If you are filing a joint return and your spouse
could be claimed as a dependent by someone
else, you and your spouse cannot claim any
dependents on your joint return.
 
M

Mark Bole

Arthur said:
2007 Pub 501 is pretty sure that dependents cannot have dpendents.

I think the intent of the law is that exemptions for tax purposes should
be on a per capita basis, in other words, each person should be
potentially claimable on *some* tax return (but no more than one). (I
know, some here don't like suppositions about the intent of the law...)

Suppose two single adults (both over age 25) and teenage child (age 18)
of one of them, all living together for the entire year with no one
else. Adult #1 earns $50K and supports all three. Adult #2 (parent of
the child) has zero income. Child has $6K earnings. (The other parent
of the child becomes irrelevant for tax purposes given these facts).

Adult #1 claims Adult #2 as a dependent. Child cannot be claimed by
anyone as a dependent so claims self on own return (and is therefore not
required to file). Result, household as a whole benefits from three
exemptions.

Now suppose Adult #2 is no longer supported by Adult #1 (for example,
using funds from an inheritance, everything else the same). Even though
Adult #2 is not required to file, Adult #2 is no longer a dependent and
thus child could be claimed as a dependent by parent.

Adult #1 can only claim self, Adult #2 could claim two exemptions
(personal and dependent) but gets no tax benefit (and is not required to
file), child must file as a dependent with no exemption (but full
standard deduction), pays small amount of tax. Result, household as a
whole still has three exemptions but two of them don't yield any benefit.

Dick, have you written that book yet about living in sin for fun and
profit? ;-)

Side note to D.Stussy: "One does not refer to a spouse as a companion"
-- to repeat your own advice, ASSUME NOTHING. One does not usually
refer to an ex-MIL as a MIL (mother-in-law), even though as you point
out, the "in-law" or "step-" relationship does not end with divorce or
death.

-Mark Bole
 
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B

Bob Sandler

4) the *taxpayer* is not a dependent (i.e. dependents cannot have
2007 Pub 501 is pretty sure that dependents cannot have dpendents.

Any idea where that notion arose?
IRC Sec. 152(b)(1)

"Dependents ineligible.--If an individual is a dependent of
a taxpayer for any taxable year of such taxpayer beginning
in a calendar year, such individual shall be treated as
having no dependents for any taxable year of such individual
beginning in such calendar year."

Bob Sandler
 
A

Arthur Kamlet

I think the intent of the law is that exemptions for tax purposes should
be on a per capita basis, in other words, each person should be
potentially claimable on *some* tax return (but no more than one). (I
know, some here don't like suppositions about the intent of the law...)
Why bring intent into this? Next thing you know, you'll be bringing
logic into it :^)

Suppose two single adults (both over age 25) and teenage child (age 18)
of one of them, all living together for the entire year with no one
else. Adult #1 earns $50K and supports all three. Adult #2 (parent of
the child) has zero income. Child has $6K earnings. (The other parent
of the child becomes irrelevant for tax purposes given these facts).

Adult #1 claims Adult #2 as a dependent. Child cannot be claimed by
anyone as a dependent so claims self on own return (and is therefore not
required to file). Result, household as a whole benefits from three
exemptions.

This of course is not what happens here. Child is not the qualifying
child of "any taxpayer" since adult 2 has no income and is not
required to and does not file a tax return. So Adult 1 can claim
child in your scenario. Adult 1 claims personal exemption and also
claims dependency exemption for child 1 and adult 2. Three exemptions.
Different way of getting there.
 
D

D. Stussy

Arthur Kamlet said:
2007 Pub 501 is pretty sure that dependents cannot have dpendents.

Any idea where that notion arose?


http://www.irs.gov/pub/irs-pdf/p501.pdf

Page 9

Begin Quote:


Dependent Taxpayer Test

If you could be claimed as a dependent by an-
other person, you cannot claim anyone else as a
dependent. Even if you have a qualifying child or
qualifying relative, you cannot claim that person
as a dependent.
If you are filing a joint return and your spouse
could be claimed as a dependent by someone
else, you and your spouse cannot claim any
dependents on your joint return.
I'd say that's a conclusion of the support test. If one is not providing
50%+1 of one's own support, one isn't going to be able to support someone
else. However, it's still not in statute.
 
A

Arthur Kamlet

I'd say that's a conclusion of the support test. If one is not providing
50%+1 of one's own support, one isn't going to be able to support someone
else. However, it's still not in statute.

See Bob's message on this thread citing IRC 152(b)(1)
 
M

Mark Bole

This of course is not what happens here. Child is not the qualifying
child of "any taxpayer" since adult 2 has no income and is not
required to and does not file a tax return. So Adult 1 can claim
child in your scenario. Adult 1 claims personal exemption and also
claims dependency exemption for child 1 and adult 2. Three exemptions.
Different way of getting there.
Nope, I constructed my example so the new rule (that is, the newer rule
in 2008 regarding the new UDC rules from 2005) about QC doesn't come
into play. Remember the gross income test? Child cannot be a QR of
Adult #1 because of child's gross income, so the test regarding whether
child is a QC of another "taxpayer" doesn't matter.

What I was trying to illustrate is that while by all normal measures,
Child would be claimable as a dependent by Adult #2 (the parent), but
the fact that Adult #2 could be claimed suddenly frees up Child to no
longer be claimable by anyone.

I don't really know how exactly this is written into statute, but I
suppose there are some unresolvable situations buried somewhere in
there. For example, the dependency test about filing a joint return
(one cannot be dependent if one files MFJ) has an exception which
involves not being required to file (filing only to get a refund of
withholding, for example). But before you can determine whether someone
is required to file, you need to know if they are claimable as a
dependent (so that you can determine the standard deduction). But you
can't determine if they are claimable as a dependent unless you know
whether they are required to file -- infinite loop.

-Mark Bole
 
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M

Mark1154

Nope, I constructed my example so the new rule (that is, the newer rule
in 2008 regarding the new UDC rules from 2005) about QC doesn't come
into play.  Remember the gross income test?  Child cannot be a QR of
Adult #1 because of child's gross income, so the test regarding whether
child is a QC of another "taxpayer" doesn't matter.

What I was trying to illustrate is that while by all normal measures,
Child would be claimable as a dependent by Adult #2 (the parent), but
the fact that Adult #2 could be claimed suddenly frees up Child to no
longer be claimable by anyone.

I don't really know how exactly this is written into statute, but I
suppose there are some unresolvable situations buried somewhere in
there.  For example, the dependency test about filing a joint return
(one cannot be dependent if one files MFJ) has an exception which
involves not being required to file (filing only to get a refund of
withholding, for example).  But before you can determine whether someone
is required to file, you need to know if they are claimable as a
dependent (so that you can determine the standard deduction).  But you
can't determine if they are claimable as a dependent unless you know
whether they are required to file -- infinite loop.

-Mark Bole
Just to fill in the blanks...my MIL was single, the companion was a
man we all referred to as Mr Joe. He had never divorced his wife but
lived in my MIL's house for over 50 years. She has NO income other
than SS; I saw a reference to that earlier where it was stated that SS
does not count with regard to the dependency test. If the "all or
none" principle applies here than I guess I should wait until tax year
2009 to claim her.
 
A

Arthur Kamlet

Just to fill in the blanks...my MIL was single, the companion was a
man we all referred to as Mr Joe. He had never divorced his wife but
lived in my MIL's house for over 50 years. She has NO income other
than SS; I saw a reference to that earlier where it was stated that SS
does not count with regard to the dependency test.

Just to be clear: There are several qualaifying relaive tests, each of
which have to be passed.

Social security can be effecively ignored for the Gross Income Test.
(Unless, say, a three year lump sum payment was received.)


But social security should be considered for the support test.
 
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M

Mark Bole

Arthur said:
[tangent snipped]

Just to be clear: There are several qualaifying relaive tests, each of
which have to be passed.

Social security can be effecively ignored for the Gross Income Test.
(Unless, say, a three year lump sum payment was received.)


But social security should be considered for the support test.
Sounds right based on what you have told us. To amplify what Art wrote:
It's not only that her gross income (excluding non-taxable Soc. Sec.)
has to be relatively small, but *you* have to provide over half of her
support. Support is independent of income: it is simply a matter of
*what* did it cost (living expenses), and *who* paid. *Where* the money
came from, whether current income (including Soc. Sec.) or some other
source of funds (savings, gifts, loans, inheritance, etc), is irrelevant.

I asked earlier about her shelter -- living in her own house, as you
said she did earlier this year, is a major component of support she
provided for herself, and has nothing to do with income.

If she lives with you in 2009 but continues to pay more than half of her
own food, clothes, medical, travel, entertainment, housing (by sharing
expenses, for example), and so on, you would still not be supporting her
for tax purposes and therefore not able to claim her. On the other
hand, if she leaves her money (including Soc. Sec. payments) in the bank
and *you* provide over half of her living expenses, then you meet the
support test for claiming her.

There may be other issues around whether and how her former house is
disposed of, that might make this a good year to seek professional
advice, maybe even before year end.

-Mark Bole
 
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