21.4 Qualifying Relatives
You may claim an exemption for a qualifying relative (under the relationship, gross income and support tests below), provided (1) that person is not your qualifying child (21.3) nor the qualifying child of any other taxpayer, (2) you cannot be claimed as a dependent (nor your spouse if you file jointly) by another taxpayer, and (3) the citizenship/resident test (21.8) and joint return test (21.9) are also met. If the member-of-household test described below is met, it may be possible to claim an individual as your qualifying relative even if he or she is “technically” the qualifying child of another taxpayer.
Assuming a person meets the relationship test, you must provide over 50% of his or her support and his or her gross income must be under the exemption amount ($3,800 for 2012) for you to claim that person as your qualifying relative.
Filing Tip
Relationship test.
Relatives listed below meet the relationship test; they do not have to live with you. Unrelated or distantly related persons not on this list meet the relationship test if they live with you as discussed below under the member-of-household test.
Children, grandchildren, and great-grandchildren who are not qualifying children. Your children, grandchildren, and great-grandchildren can meet the relationship test for a qualifying relative only if they are not your qualifying children or the qualifying children of any other taxpayer under the rules for qualifying children (21.3). For example, if your child is not your qualifying child for 2012 because he or she does not meet the age/student test or the principal place of abode test (21.3), you may still be able to claim an exemption for the child as your qualifying relative, but only if he or she has gross income for 2012 under the $3,800 limit and you provide over 50% of his or her support for the year.
Brothers, sisters, and their children. The same considerations discussed above for children, grandchildren, and great-grandchildren apply for your siblings (including half- or step-siblings) and their children. They can be your qualifying relatives only if they are not your qualifying children (21.3) or the qualifying children of anyone else.
Parents, grandparents, and other relatives. The following individuals also meet the relationship test: your parent, grandparent, great-grandparent, step-parent, son- or daughter-in-law, father- or mother-in-law, and brother- or sister-in-law. If related by blood, aunts and uncles also qualify.
Stepchild’s husband or wife or child. Your stepchild’s spouse does not meet the relationship test. Nor may you claim an exemption for a step-grandchild if you file a separate return. But you may claim them on a joint return as qualifying relatives if the other exemption tests are met. On a joint return, it is not necessary that the close relationship exist between the dependent and the spouse who furnishes the chief support. It is sufficient that the relationship exists with either spouse.
In-laws. Brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law, and daughter-in-law are relatives by marriage. They meet the relationship test and you may claim them as exemptions if the other tests for qualifying relatives are satisfied.
An in-law who was related to you by marriage and whom you continue to support after divorce or the death of your spouse meets the relationship test.
Death during the year. If a relative died during 2012 but was supported by you while alive, and the other tests for an exemption are met, you may claim an exemption for the relative.
Member-of-household test for unrelated or distantly related dependents living with you. A relative not listed above, such as a cousin, meets the relationship test if he or she lives with you all year as a member of your household, except for temporary absences due to schooling, vacationing, being away on business, serving in the military, or being confined to a hospital. A friend or mate living with you can also qualify, but not if the relationship violates local law. For example, if you live with a person married to someone else and the relationship violates the law of the state where you live, you cannot claim an exemption for that person.
The “all-year” test can cost you an exemption, despite the level of your support. For example, in one case, a taxpayer let his cousin and her children move in with him in May 2009 because the cousin feared her estranged husband. The Tax Court held that he could not claim the children as dependents under the member-of-household test because they did not live with him for the whole year, but only from May through December.
Under the tax law, one spouse is not considered a dependent of the other (21.2). If you are divorced or legally separated during the year, your former spouse cannot be your qualifying relative even if he or she is a member of your household for the whole year.
Special exception for child of unmarried cohabitant. If a taxpayer lives with and supports a mate and the mate’s child, an exemption for the child may or may not be allowed to the taxpayer under the member-of-household test. For example, if a taxpayer supports his girlfriend and her child as members of his household, he “technically” cannot claim the child as his qualifying relative because the child is the mother’s qualifying child (21.3) and a qualifying child cannot be the qualifying relative of someone else. However, the IRS allows a limited exception. The exemption for the child can be claimed if the child’s mother (for whom the child is a qualifying child) is not required to file a tax return because of low income, and she does not file a return or files solely to get a refund of withheld income taxes. If the mother files a return to claim the earned income credit as well as to obtain a refund for withheld income taxes, the exception does not apply and the taxpayer cannot treat the child as his qualifying relative.
The mother can also be the qualifying relative of the taxpayer under the member-of-household test, provided that their relationship is not illegal under local law.
Gross income limit.
A person meeting the above relationship test cannot be claimed as your qualifying relative if he or she had gross income for 2012 of $3,800 or more. This is true even if you provide most or all of that person’s support. The $3,800 limit, equal to the exemption amount, changes annually as the exemption amount is adjusted for inflation.
Caution
Keep in mind that the gross income test does not apply to children who meet the tests for a qualifying child (21.3). However, if a child does not meet the age/student test or principal place of abode test, and thus is not a qualifying child (21.3), he or she must have gross income under the annual limit ($3,800 for 2012) to be claimed as a dependent under the qualifying relative rules.
Gross income here means taxable income items includible in the dependent’s tax return. It does not include nontaxable items such as gifts and tax-exempt bond interest. Gross income for a service-type business is gross receipts without deductions of expenses and for a manufacturing or merchandising business is total sales less cost of goods sold. A partner’s share of partnership gross income, not the share of net income, is treated as gross income.
Social Security benefits are treated as gross income only to the extent they are taxable (34.3).
Exception for disabled student working at sheltered workshop. For purposes of the gross income test gross income does not include income earned by a totally and permanently disabled individual at a school operated by a government agency or tax-exempt organization, if the school provides special instruction for alleviating the disability and the income is incidental to medical care received.
Support test.
A person cannot be your qualifying relative unless you provide over half of his or her total support for the year. The support test applies to a child who does not meet the tests for a qualifying child (21.3). See 21.5 for how to count total support and your contribution to the total.