Galveston, TX CPA / Full service tax and business consulting / Robert Dee Jr., C.P.A.

Dependency Exemption

Dependency Exemption - Who gets it - Not an easy task.
 
  1. In addition to the exemption claimed for themselves, taxpayers may claim additional exemptions for qualifying dependents.
  1. Prior to the new law, a taxpayer was generally eligible for the dependency exemption for any individual who met five tests:
    2.
    1. Relationship or member-of-household test,
    2. Support test,
    3. Gross income or child-under-certain-age test,
    4. Citizenship or residency test,
    5. Restriction-on-filing-a-joint return test.
  1. Under the new law, dependents have been divided into two groups: qualifying relative and qualifying child.
  1. Qualifying Relative: To be a qualifying relative, the individual must meet the same tests as existed under the prior law.
    2.
    1. The category of qualifying relative includes anyone who meets the five tests but does not meet the definition of a qualifying child (discussed next).
    2. It includes a child of the taxpayer who does not meet the definition of a qualifying child (due to the age limits).
    3. It also includes an individual who is a member of the taxpayer's household for the entire year (other than the taxpayer's spouse).
  1. Qualifying Child: To be a qualifying child, the child must meet five conditions that are different from the five tests for a qualifying relative.
    2.
    1. Relationship: The child must be the taxpayer's son, daughter, stepson, stepdaughter, eligible foster child or decedent of such a child, or the taxpayer's brother, sister, stepbrother, stepsister, any decedent of any such relative or adopted child.
    2. Age: The child must be under the age of 19 or under the age of 24 and a full-time student or disabled.
    3. Citizenship/Residency: The child must be a citizen or resident of the Unites Sates, or a resident of Canada or Mexico.
    4. Principal Residence: The child must have the same principal place of abode as the taxpayer for more than half of the year.
    5. Non-Self-Supporting: The child must not have provided over half of his or her own support.
  1. Tie-Breaking Rules: For situations where more than one taxpayer may be otherwise eligible to claim a qualifying child as a dependent, the new law provides three tiebreakers.
    2.
    1. If the child is the son or daughter of one taxpayer, that taxpayer will be entitled to the exemption, even if another taxpayer who is not the child?s parent would be otherwise qualified to claim the exemption.
    2. If two parents of the same child file separately, the parent with whom the child resides for the longest period of time during the year will be eligible to claim the child. If this rule does not break the tie, then the parent with the highest adjusted gross income will be eligible.
    3. If the parents of the child do not claim the child, then the otherwise eligible taxpayer with the highest adjusted gross income will be eligible to claim the child as a dependent.
  1. In the case of divorced or legally separated parents, the new law no longer presumes that the custodial parent is entitled to the child?s dependency exemption; instead, it spells out the rules that must be satisfied before the noncustodial parent can claim the exemption.
    2.
    1. The child is treated as the qualifying child or qualifying relative of the noncustodial parent only if the parents' divorce or separation instrument provides that the noncustodial parent is entitled to the dependency exemption.
    2. However, if the custodial parent is entitled to the dependency exemption, the noncustodial parent can still claim the dependency exemption if the custodial parent completes a Form 8332 or a similar statement indication that he or she is not claiming the exemption an attaches this for or statement to his or her return.

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