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1040 15. 1040   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. 1040 More information. 1040 Special SituationsException for sales to related persons. 1040 Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. 1040  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. 1040 See Mortgage ending early under Points in chapter 23. 1040 Introduction This chapter explains the tax rules that apply when you sell your main home. 1040 In most cases, your main home is the one in which you live most of the time. 1040 If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). 1040 See Excluding the Gain , later. 1040 Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. 1040 If you have gain that cannot be excluded, it is taxable. 1040 Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). 1040 You may also have to complete Form 4797, Sales of Business Property. 1040 See Reporting the Sale , later. 1040 If you have a loss on the sale, you generally cannot deduct it on your return. 1040 However, you may need to report it. 1040 See Reporting the Sale , later. 1040 The following are main topics in this chapter. 1040 Figuring gain or loss. 1040 Basis. 1040 Excluding the gain. 1040 Ownership and use tests. 1040 Reporting the sale. 1040 Other topics include the following. 1040 Business use or rental of home. 1040 Recapturing a federal mortgage subsidy. 1040 Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. 1040 ” Usually, the home you live in most of the time is your main home and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 1040 To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040 Land. 1040   If you sell the land on which your main home is located, but not the house itself, you cannot exclude any gain you have from the sale of the land. 1040 However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. 1040 See Vacant land under Main Home in Publication 523 for more information. 1040 Example. 1040 You buy a piece of land and move your main home to it. 1040 Then you sell the land on which your main home was located. 1040 This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. 1040 More than one home. 1040   If you have more than one home, you can exclude gain only from the sale of your main home. 1040 You must include in income gain from the sale of any other home. 1040 If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. 1040 Example 1. 1040 You own two homes, one in New York and one in Florida. 1040 From 2009 through 2013, you live in the New York home for 7 months and in the Florida residence for 5 months of each year. 1040 In the absence of facts and circumstances indicating otherwise, the New York home is your main home. 1040 You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. 1040 Example 2. 1040 You own a house, but you live in another house that you rent. 1040 The rented house is your main home. 1040 Example 3. 1040 You own two homes, one in Virginia and one in New Hampshire. 1040 In 2009 and 2010, you lived in the Virginia home. 1040 In 2011 and 2012, you lived in the New Hampshire home. 1040 In 2013, you lived again in the Virginia home. 1040 Your main home in 2009, 2010, and 2013 is the Virginia home. 1040 Your main home in 2011 and 2012 is the New Hampshire home. 1040 You would be eligible to exclude gain from the sale of either home (but not both) in 2013. 1040 Property used partly as your main home. 1040   If you use only part of the property as your main home, the rules discussed in this publication apply only to the gain or loss on the sale of that part of the property. 1040 For details, see Business Use or Rental of Home , later. 1040 Figuring Gain or Loss To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. 1040 Subtract the adjusted basis from the amount realized to get your gain or loss. 1040     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. 1040 It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale. 1040 Payment by employer. 1040   You may have to sell your home because of a job transfer. 1040 If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. 1040 Your employer will include it as wages in box 1 of your Form W-2, and you will include it in your income on Form 1040, line 7. 1040 Option to buy. 1040   If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. 1040 If the option is not exercised, you must report the amount as ordinary income in the year the option expires. 1040 Report this amount on Form 1040, line 21. 1040 Form 1099-S. 1040   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. 1040   However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. 1040 Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. 1040 Amount Realized The amount realized is the selling price minus selling expenses. 1040 Selling expenses. 1040   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. 1040 ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. 1040 This adjusted basis must be determined before you can figure gain or loss on the sale of your home. 1040 For information on how to figure your home's adjusted basis, see Determining Basis , later. 1040 Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. 1040 Gain on sale. 1040   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. 1040 Loss on sale. 1040   If the amount realized is less than the adjusted basis, the difference is a loss. 1040 A loss on the sale of your main home cannot be deducted. 1040 Jointly owned home. 1040   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. 1040 Separate returns. 1040   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. 1040 Your ownership interest is generally determined by state law. 1040 Joint owners not married. 1040   If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. 1040 Each of you applies the rules discussed in this chapter on an individual basis. 1040 Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. 1040 Foreclosure or repossession. 1040   If your home was foreclosed on or repossessed, you have a disposition. 1040 See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. 1040 Abandonment. 1040   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. 1040 Trading (exchanging) homes. 1040   If you trade your old home for another home, treat the trade as a sale and a purchase. 1040 Example. 1040 You owned and lived in a home with an adjusted basis of $41,000. 1040 A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. 1040 This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). 1040 If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed). 1040 Transfer to spouse. 1040   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss. 1040 This is true even if you receive cash or other consideration for the home. 1040 As a result, the rules in this chapter do not apply. 1040 More information. 1040   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. 1040 Involuntary conversion. 1040   You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. 1040 This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations . 1040 Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. 1040 Your basis in your home is determined by how you got the home. 1040 Generally, your basis is its cost if you bought it or built it. 1040 If you got it in some other way (inheritance, gift, etc. 1040 ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. 1040 While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. 1040 The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. 1040 See Adjusted Basis , later. 1040 You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. 1040 Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. 1040 Purchase. 1040   If you bought your home, your basis is its cost to you. 1040 This includes the purchase price and certain settlement or closing costs. 1040 In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. 1040 If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. 1040 Settlement fees or closing costs. 1040   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. 1040 You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. 1040 A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing). 1040    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. 1040 It also lists some settlement costs that cannot be included in basis. 1040   Also see Publication 523 for additional items and a discussion of basis other than cost. 1040 Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. 1040 To figure your adjusted basis, you can use Worksheet 1 in Publication 523. 1040 Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. 1040 Increases to basis. 1040   These include the following. 1040 Additions and other improvements that have a useful life of more than 1 year. 1040 Special assessments for local improvements. 1040 Amounts you spent after a casualty to restore damaged property. 1040 Improvements. 1040   These add to the value of your home, prolong its useful life, or adapt it to new uses. 1040 You add the cost of additions and other improvements to the basis of your property. 1040   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. 1040 An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. 1040 Repairs. 1040   These maintain your home in good condition but do not add to its value or prolong its life. 1040 You do not add their cost to the basis of your property. 1040   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. 1040 Decreases to basis. 1040   These include the following. 1040 Discharge of qualified principal residence indebtedness that was excluded from income. 1040 Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. 1040 For details, see Publication 4681. 1040 Gain you postponed from the sale of a previous home before May 7, 1997. 1040 Deductible casualty losses. 1040 Insurance payments you received or expect to receive for casualty losses. 1040 Payments you received for granting an easement or right-of-way. 1040 Depreciation allowed or allowable if you used your home for business or rental purposes. 1040 Energy-related credits allowed for expenditures made on the residence. 1040 (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. 1040 ) Adoption credit you claimed for improvements added to the basis of your home. 1040 Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. 1040 Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. 1040 An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home. 1040 District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). 1040 General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. 1040 Discharges of qualified principal residence indebtedness. 1040   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. 1040 This exclusion applies to discharges made after 2006 and before 2014. 1040 If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. 1040   File Form 982 with your tax return. 1040 See the form's instructions for detailed information. 1040 Recordkeeping. 1040 You should keep records to prove your home's adjusted basis. 1040 Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. 1040 But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. 1040 Keep records proving the basis of both homes as long as they are needed for tax purposes. 1040 The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. 1040 Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. 1040 This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion , next. 1040 To qualify, you must meet the ownership and use tests described later. 1040 You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 1040 You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. 1040 If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. 1040 See Publication 505, Tax Withholding and Estimated Tax. 1040 Maximum Exclusion You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 1040 You meet the ownership test. 1040 You meet the use test. 1040 During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 1040 For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. 1040 You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 1040 Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 1040 This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 1040 Exception. 1040   If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. 1040 However, the maximum amount you may be able to exclude will be reduced. 1040 See Reduced Maximum Exclusion , later. 1040 Example 1—home owned and occupied for at least 2 years. 1040 Mya bought and moved into her main home in September 2011. 1040 She sold the home at a gain in October 2013. 1040 During the 5-year period ending on the date of sale in October 2013, she owned and lived in the home for more than 2 years. 1040 She meets the ownership and use tests. 1040 Example 2—ownership test met but use test not met. 1040 Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. 1040 He later sold the home for a gain. 1040 He owned the home during the entire 5-year period ending on the date of sale. 1040 He meets the ownership test but not the use test. 1040 He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). 1040 Period of Ownership and Use The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. 1040 You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale. 1040 Temporary absence. 1040   Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. 1040 The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. 1040 Example 1. 1040 David Johnson, who is single, bought and moved into his home on February 1, 2011. 1040 Each year during 2011 and 2012, David left his home for a 2-month summer vacation. 1040 David sold the house on March 1, 2013. 1040 Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. 1040 The 2-month vacations are short temporary absences and are counted as periods of use in determining whether David used the home for the required 2 years. 1040 Example 2. 1040 Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. 1040 He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. 1040 On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. 1040 Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. 1040 He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. 1040 Ownership and use tests met at different times. 1040   You can meet the ownership and use tests during different 2-year periods. 1040 However, you must meet both tests during the 5-year period ending on the date of the sale. 1040 Example. 1040 Beginning in 2002, Helen Jones lived in a rented apartment. 1040 The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. 1040 In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. 1040 On July 12, 2013, while still living in her daughter's home, she sold her condominium. 1040 Helen can exclude gain on the sale of her condominium because she met the ownership and use tests during the 5-year period from July 13, 2008, to July 12, 2013, the date she sold the condominium. 1040 She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). 1040 She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). 1040 The time Helen lived in her daughter's home during the 5-year period can be counted toward her period of ownership, and the time she lived in her rented apartment during the 5-year period can be counted toward her period of use. 1040 Cooperative apartment. 1040   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. 1040 Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. 1040 Exception for individuals with a disability. 1040   There is an exception to the use test if: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year during the 5-year period before the sale of your home. 1040 Under this exception, you are considered to live in your home during any time within the 5-year period that you own the home and live in a facility (including a nursing home) licensed by a state or political subdivision to care for persons in your condition. 1040 If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 1040 Previous home destroyed or condemned. 1040   For the ownership and use tests, you add the time you owned and lived in a previous home that was destroyed or condemned to the time you owned and lived in the replacement home on whose sale you wish to exclude gain. 1040 This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. 1040 Otherwise, you must have owned and lived in the same home for 2 of the 5 years before the sale to qualify for the exclusion. 1040 Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 1040   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. 1040 You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. 1040 This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. 1040   If this helps you qualify to exclude gain, you can choose to have the 5-year test period suspended by filing a return for the year of sale that does not include the gain. 1040 For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. 1040 Married Persons If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. 1040 (But see Special rules for joint returns , next. 1040 ) Special rules for joint returns. 1040   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 1040 You are married and file a joint return for the year. 1040 Either you or your spouse meets the ownership test. 1040 Both you and your spouse meet the use test. 1040 During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. 1040 If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. 1040 For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. 1040 Example 1—one spouse sells a home. 1040 Emily sells her home in June 2013 for a gain of $300,000. 1040 She marries Jamie later in the year. 1040 She meets the ownership and use tests, but Jamie does not. 1040 Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. 1040 The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. 1040 Example 2—each spouse sells a home. 1040 The facts are the same as in Example 1 except that Jamie also sells a home in 2013 for a gain of $200,000 before he marries Emily. 1040 He meets the ownership and use tests on his home, but Emily does not. 1040 Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. 1040 However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. 1040 Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. 1040 The $500,000 maximum exclusion for certain joint returns does not apply because Emily and Jamie do not both meet the use test for the same home. 1040 Sale of main home by surviving spouse. 1040   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 1040   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. 1040 The sale or exchange took place after 2008. 1040 The sale or exchange took place no more than 2 years after the date of death of your spouse. 1040 You have not remarried. 1040 You and your spouse met the use test at the time of your spouse's death. 1040 You or your spouse met the ownership test at the time of your spouse's death. 1040 Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 1040 Example. 1040   Harry owned and used a house as his main home since 2009. 1040 Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. 1040 Harry died on August 15, 2013, and Wilma inherited the property. 1040 Wilma sold the property on September 3, 2013, at which time she had not remarried. 1040 Although Wilma owned and used the house for less than 2 years, Wilma is considered to have satisfied the ownership and use tests because her period of ownership and use includes the period that Harry owned and used the property before death. 1040 Home transferred from spouse. 1040   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 1040 Use of home after divorce. 1040   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 1040 Reduced Maximum Exclusion If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. 1040 This applies to those who: Fail to meet the ownership and use tests, or Have used the exclusion within 2 years of selling their current home. 1040 In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. 1040 A change in place of employment. 1040 Health. 1040 Unforeseen circumstances. 1040 Unforeseen circumstances. 1040   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. 1040   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. 1040 Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income. 1040 But you must meet the ownership and use tests. 1040 Periods of nonqualified use. 1040   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. 1040 Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. 1040 Exceptions. 1040   A period of nonqualified use does not include: Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home; Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty: As a member of the uniformed services; As a member of the Foreign Service of the United States; or As an employee of the intelligence community; and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS. 1040 The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. 1040 Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. 1040 Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. 1040 Calculation. 1040   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. 1040 Example 1. 1040 On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. 1040 She moved in on that date and lived in it until May 31, 2009, when she moved out of the house and put it up for rent. 1040 The house was rented from June 1, 2009, to March 31, 2011. 1040 Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. 1040 Amy moved back into the house on April 1, 2011, and lived there until she sold it on January 31, 2013, for a gain of $200,000. 1040 During the 5-year period ending on the date of the sale (January 31, 2008-January 31, 2013), Amy owned and lived in the house for more than 2 years as shown in the following table. 1040 Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. 1040 Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. 1040 321. 1040 To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. 1040 321. 1040 Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. 1040 Example 2. 1040 William owned and used a house as his main home from 2007 through 2010. 1040 On January 1, 2011, he moved to another state. 1040 He rented his house from that date until April 30, 2013, when he sold it. 1040 During the 5-year period ending on the date of sale (May 1, 2008-April 30, 2013), William owned and lived in the house for more than 2 years. 1040 He must report the sale on Form 4797 because it was rental property at the time of sale. 1040 Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. 1040 Because he met the ownership and use tests, he can exclude gain up to $250,000. 1040 However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next. 1040 Depreciation after May 6, 1997. 1040   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 1040 If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. 1040 See Publication 544 for more information. 1040 Property used partly for business or rental. 1040   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. 1040 Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. 1040 If any of these conditions apply, report the entire gain or loss. 1040 For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. 1040 If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). 1040 See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. 1040 Installment sale. 1040    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. 1040 These sales are called “installment sales. 1040 ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. 1040 You may be able to report the part of the gain you cannot exclude on the installment basis. 1040    Use Form 6252, Installment Sale Income, to report the sale. 1040 Enter your exclusion on line 15 of Form 6252. 1040 Seller-financed mortgage. 1040   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. 1040 You must separately report as interest income the interest you receive as part of each payment. 1040 If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). 1040 The buyer must give you his or her SSN, and you must give the buyer your SSN. 1040 Failure to meet these requirements may result in a $50 penalty for each failure. 1040 If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. 1040 More information. 1040   For more information on installment sales, see Publication 537, Installment Sales. 1040 Special Situations The situations that follow may affect your exclusion. 1040 Sale of home acquired in a like-kind exchange. 1040   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. 1040 Gain from a like-kind exchange is not taxable at the time of the exchange. 1040 This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. 1040 To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. 1040 For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. 1040 Home relinquished in a like-kind exchange. 1040   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. 1040 Expatriates. 1040   You cannot claim the exclusion if the expatriation tax applies to you. 1040 The expatriation tax applies to certain U. 1040 S. 1040 citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). 1040 For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. 1040 S. 1040 Tax Guide for Aliens. 1040 Home destroyed or condemned. 1040   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. 1040   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. 1040 Sale of remainder interest. 1040   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. 1040 If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. 1040 Exception for sales to related persons. 1040   You cannot exclude gain from the sale of a remainder interest in your home to a related person. 1040 Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. 1040 ), and lineal descendants (children, grandchildren, etc. 1040 ). 1040 Related persons also include certain corporations, partnerships, trusts, and exempt organizations. 1040 Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. 1040 You recapture the benefit by increasing your federal income tax for the year of the sale. 1040 You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. 1040 Loans subject to recapture rules. 1040   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. 1040 The recapture also applies to assumptions of these loans. 1040 When recapture applies. 1040   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. 1040 You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. 1040 Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). 1040 When recapture does not apply. 1040   Recapture does not apply in any of the following situations. 1040 Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. 1040 Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. 1040 For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. 1040 Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 1040 The home is disposed of as a result of your death. 1040 You dispose of the home more than 9 years after the date you closed your mortgage loan. 1040 You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. 1040 You dispose of the home at a loss. 1040 Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. 1040 The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. 1040 For more information, see Replacement Period in Publication 547. 1040 You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). 1040 Notice of amounts. 1040   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. 1040 How to figure and report the recapture. 1040    The recapture tax is figured on Form 8828. 1040 If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. 1040 Attach Form 8828 to your Form 1040. 1040 For more information, see Form 8828 and its instructions. 1040 Prev  Up  Next   Home   More Online Publications
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Page Last Reviewed or Updated: 14-Mar-2014

The 1040

1040 3. 1040   Personal Exemptions and Dependents Table of Contents What's New Introduction Useful Items - You may want to see: ExemptionsPersonal Exemptions Exemptions for Dependents Qualifying Child Qualifying Relative Phaseout of Exemptions Social Security Numbers for DependentsBorn and died in 2013. 1040 Taxpayer identification numbers for aliens. 1040 Taxpayer identification numbers for adoptees. 1040 What's New Exemption amount. 1040  The amount you can deduct for each exemption has increased. 1040 It was $3,800 for 2012. 1040 It is $3,900 for 2013. 1040 Exemption phaseout. 1040  You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. 1040 For 2013, this amount is $150,000 for a married individual filing a separate return; $250,000 for a single individual; $275,000 for a head of household; and $300,000 for married individuals filing jointly or a qualifying widow(er). 1040 See Phaseout of Exemptions , later. 1040 Introduction This chapter discusses the following topics. 1040 Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse. 1040 Exemptions for dependents — You generally can take an exemption for each of your dependents. 1040 A dependent is your qualifying child or qualifying relative. 1040 If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return. 1040 Phaseout of exemptions — Your deduction is reduced if your adjusted gross income is more than a certain amount. 1040 Social security number (SSN) requirement for dependents — You must list the SSN of any dependent for whom you claim an exemption. 1040 Deduction. 1040   Exemptions reduce your taxable income. 1040 You can deduct $3,900 for each exemption you claim in 2013. 1040 But you may lose at least part of the dollar amount of your exemptions if your adjusted gross income is more than a certain amount. 1040 See Phaseout of Exemptions , later. 1040 How to claim exemptions. 1040    How you claim an exemption on your tax return depends on which form you file. 1040    If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5. 1040    If you file Form 1040A, complete lines 6a through 6d. 1040 The total number of exemptions you can claim is the total in the box on line 6d. 1040 Also complete line 26. 1040   If you file Form 1040, complete lines 6a through 6d. 1040 The total number of exemptions you can claim is the total in the box on line 6d. 1040 Also complete line 42. 1040 Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information Form (and Instructions) 2120 Multiple Support Declaration 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent Exemptions There are two types of exemptions you may be able to take: Personal exemptions for yourself and your spouse, and Exemptions for dependents (dependency exemptions). 1040 While each is worth the same amount ($3,900 for 2013), different rules apply to each type. 1040 Personal Exemptions You are generally allowed one exemption for yourself. 1040 If you are married, you may be allowed one exemption for your spouse. 1040 These are called personal exemptions. 1040 Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. 1040 If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent. 1040 Your Spouse's Exemption Your spouse is never considered your dependent. 1040 Joint return. 1040   On a joint return you can claim one exemption for yourself and one for your spouse. 1040 Separate return. 1040   If you file a separate return, you can claim an exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. 1040 This is true even if the other taxpayer does not actually claim your spouse as a dependent. 1040 You can claim an exemption for your spouse even if he or she is a nonresident alien; in that case, your spouse must have no gross income for U. 1040 S. 1040 tax purposes, must not be filing a return, and must not be the dependent of another taxpayer. 1040 Death of spouse. 1040   If your spouse died during the year and you file a joint return for yourself and your deceased spouse, you generally can claim your spouse's exemption under the rules just explained in Joint return . 1040 If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return . 1040   If you remarried during the year, you cannot take an exemption for your deceased spouse. 1040   If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. 1040 If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. 1040 Divorced or separated spouse. 1040   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. 1040 This rule applies even if you provided all of your former spouse's support. 1040 Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. 1040 You can claim an exemption for a dependent even if your dependent files a return. 1040 The term “dependent” means: A qualifying child, or A qualifying relative. 1040 The terms “ qualifying child ” and “ qualifying relative ” are defined later. 1040 You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. 1040 Dependent taxpayer test. 1040 Joint return test. 1040 Citizen or resident test. 1040 These three tests are explained in detail later. 1040 All the requirements for claiming an exemption for a dependent are summarized in Table 3-1. 1040 Table 3-1. 1040 Overview of the Rules for Claiming an Exemption for a Dependent Caution. 1040 This table is only an overview of the rules. 1040 For details, see the rest of this chapter. 1040 You cannot claim any dependents if you (or your spouse, if filing jointly) could be claimed as a dependent by another taxpayer. 1040   You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid. 1040   You cannot claim a person as a dependent unless that person is a U. 1040 S. 1040 citizen, U. 1040 S. 1040 resident alien, U. 1040 S. 1040 national, or a resident of Canada or Mexico. 1040 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. 1040   Tests To Be a Qualifying Child   Tests To Be a Qualifying Relative The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. 1040   The child must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled. 1040   The child must have lived with you for more than half of the year. 1040 2  The child must not have provided more than half of his or her own support for the year. 1040   The child is not filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid). 1040  If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. 1040 See the Special Rule for Qualifying Child of More Than One Person to find out which person is the person entitled to claim the child as a qualifying child. 1040   The person cannot be your qualifying child or the qualifying child of any other taxpayer. 1040   The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you , or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law). 1040   The person's gross income for the year must be less than $3,900. 1040 3  You must provide more than half of the person's total support for the year. 1040 4  1There is an exception for certain adopted children. 1040 2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or parents who live apart), and kidnapped children. 1040 3There is an exception if the person is disabled and has income from a sheltered workshop. 1040 4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. 1040 Dependent not allowed a personal exemption. 1040 If you can claim an exemption for your dependent, the dependent cannot claim his or her own personal exemption on his or her own tax return. 1040 This is true even if you do not claim the dependent's exemption on your return. 1040 It is also true if the dependent's exemption on your return is reduced or eliminated under the phaseout rule described under Phaseout of Exemptions, later. 1040 Housekeepers, maids, or servants. 1040   If these people work for you, you cannot claim exemptions for them. 1040 Child tax credit. 1040   You may be entitled to a child tax credit for each qualifying child who was under age 17 at the end of the year if you claimed an exemption for that child. 1040 For more information, see chapter 34. 1040 Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. 1040 Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. 1040 If you are filing a joint return and your spouse can be claimed as a dependent by someone else, you and your spouse cannot claim any dependents on your joint return. 1040 Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. 1040 Exception. 1040   You can claim an exemption for a person who files a joint return if that person and his or her spouse file the joint return only to claim a refund of income tax withheld or estimated tax paid. 1040 Example 1—child files joint return. 1040 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 1040 He earned $25,000 for the year. 1040 The couple files a joint return. 1040 You cannot take an exemption for your daughter. 1040 Example 2—child files joint return only as claim for refund of withheld tax. 1040 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 1040 Neither is required to file a tax return. 1040 They do not have a child. 1040 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. 1040 The exception to the joint return test applies, so you are not disqualified from claiming an exemption for each of them just because they file a joint return. 1040 You can claim exemptions for each of them if all the other tests to do so are met. 1040 Example 3—child files joint return to claim American opportunity credit. 1040 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 1040 He and his wife are not required to file a tax return. 1040 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 1040 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. 1040 The exception to the joint return test does not apply, so you cannot claim an exemption for either of them. 1040 Citizen or Resident Test You cannot claim a person as a dependent unless that person is a U. 1040 S. 1040 citizen, U. 1040 S. 1040 resident alien, U. 1040 S. 1040 national, or a resident of Canada or Mexico. 1040 However, there is an exception for certain adopted children, as explained next. 1040 Exception for adopted child. 1040   If you are a U. 1040 S. 1040 citizen or U. 1040 S. 1040 national who has legally adopted a child who is not a U. 1040 S. 1040 citizen, U. 1040 S. 1040 resident alien, or U. 1040 S. 1040 national, this test is met if the child lived with you as a member of your household all year. 1040 This exception also applies if the child was lawfully placed with you for legal adoption. 1040 Child's place of residence. 1040   Children usually are citizens or residents of the country of their parents. 1040   If you were a U. 1040 S. 1040 citizen when your child was born, the child may be a U. 1040 S. 1040 citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country. 1040 Foreign students' place of residence. 1040   Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U. 1040 S. 1040 residents and do not meet this test. 1040 You cannot claim an exemption for them. 1040 However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. 1040 See Expenses Paid for Student Living With You in chapter 24. 1040 U. 1040 S. 1040 national. 1040   A U. 1040 S. 1040 national is an individual who, although not a U. 1040 S. 1040 citizen, owes his or her allegiance to the United States. 1040 U. 1040 S. 1040 nationals include American Samoans and Northern Mariana Islanders who chose to become U. 1040 S. 1040 nationals instead of U. 1040 S. 1040 citizens. 1040 Qualifying Child Five tests must be met for a child to be your qualifying child. 1040 The five tests are: Relationship, Age, Residency, Support, and Joint return. 1040 These tests are explained next. 1040 If a child meets the five tests to be the qualifying child of more than one person, a special rule applies to determine which person can actually treat the child as a qualifying child. 1040 See Special Rule for Qualifying Child of More Than One Person, later. 1040 Relationship Test To meet this test, a child must be: Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them. 1040 Adopted child. 1040   An adopted child is always treated as your own child. 1040 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 1040 Foster child. 1040   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 1040 Age Test To meet this test, a child must be: Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), A student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or Permanently and totally disabled at any time during the year, regardless of age. 1040 Example. 1040 Your son turned 19 on December 10. 1040 Unless he was permanently and totally disabled or a student, he does not meet the age test because, at the end of the year, he was not under age 19. 1040 Child must be younger than you or spouse. 1040   To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. 1040 However, if you are married filing jointly, the child must be younger than you or your spouse but does not have to be younger than both of you. 1040 Example 1—child not younger than you or spouse. 1040 Your 23-year-old brother, who is a student and unmarried, lives with you and your spouse. 1040 He is not disabled. 1040 Both you and your spouse are 21 years old, and you file a joint return. 1040 Your brother is not your qualifying child because he is not younger than you or your spouse. 1040 Example 2—child younger than your spouse but not younger than you. 1040 The facts are the same as in Example 1 except your spouse is 25 years old. 1040 Because your brother is younger than your spouse, and you and your spouse are filing a joint return, your brother is your qualifying child, even though he is not younger than you. 1040 Student defined. 1040   To qualify as a student, your child must be, during some part of each of any 5 calendar months of the year: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. 1040 The 5 calendar months do not have to be consecutive. 1040 Full-time student. 1040   A full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. 1040 School defined. 1040   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. 1040 However, an on-the-job training course, correspondence school, or school offering courses only through the Internet does not count as a school. 1040 Vocational high school students. 1040   Students who work on “co-op” jobs in private industry as a part of a school's regular course of classroom and practical training are considered full-time students. 1040 Permanently and totally disabled. 1040   Your child is permanently and totally disabled if both of the following apply. 1040 He or she cannot engage in any substantial gainful activity because of a physical or mental condition. 1040 A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 1040 Residency Test To meet this test, your child must have lived with you for more than half the year. 1040 There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. 1040 Temporary absences. 1040   Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. 1040 Your child is also considered to have lived with you during any required hospital stay following birth, as long as the child would have lived with you during that time but for the hospitalization. 1040 Death or birth of child. 1040   A child who was born or died during the year is treated as having lived with you more than half of the year if your home was the child's home more than half of the time he or she was alive during the year. 1040 Child born alive. 1040   You may be able to claim an exemption for a child born alive during the year, even if the child lived only for a moment. 1040 State or local law must treat the child as having been born alive. 1040 There must be proof of a live birth shown by an official document, such as a birth certificate. 1040 The child must be your qualifying child or qualifying relative, and all the other tests to claim an exemption for a dependent must be met. 1040 Stillborn child. 1040   You cannot claim an exemption for a stillborn child. 1040 Kidnapped child. 1040   You may be able to treat your child as meeting the residency test even if the child has been kidnapped. 1040 See Publication 501 for details. 1040 Children of divorced or separated parents (or parents who live apart). 1040   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. 1040 However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true. 1040 The parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Lived apart at all times during the last 6 months of the year, whether or not they are or were married. 1040 The child received over half of his or her support for the year from the parents. 1040 The child is in the custody of one or both parents for more than half of the year. 1040 Either of the following statements is true. 1040 The custodial parent signs a written declaration, discussed later, that he or she will not claim the child as a dependent for the year, and the noncustodial parent attaches this written declaration to his or her return. 1040 (If the decree or agreement went into effect after 1984 and before 2009, see Post-1984 and pre-2009 divorce decree or separation agreement , later. 1040 If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later. 1040 ) A pre-1985 decree of divorce or separate maintenance or written separation agreement that applies to 2013 states that the noncustodial parent can claim the child as a dependent, the decree or agreement was not changed after 1984 to say the noncustodial parent cannot claim the child as a dependent, and the noncustodial parent provides at least $600 for the child's support during the year. 1040 Custodial parent and noncustodial parent. 1040   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. 1040 The other parent is the noncustodial parent. 1040   If the parents divorced or separated during the year and the child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year. 1040   A child is treated as living with a parent for a night if the child sleeps: At that parent's home, whether or not the parent is present, or In the company of the parent, when the child does not sleep at a parent's home (for example, the parent and child are on vacation together). 1040 Equal number of nights. 1040   If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income (AGI). 1040 December 31. 1040   The night of December 31 is treated as part of the year in which it begins. 1040 For example, December 31, 2013, is treated as part of 2013. 1040 Emancipated child. 1040   If a child is emancipated under state law, the child is treated as not living with either parent. 1040 See Examples 5 and 6. 1040 Absences. 1040   If a child was not with either parent on a particular night (because, for example, the child was staying at a friend's house), the child is treated as living with the parent with whom the child normally would have lived for that night, except for the absence. 1040 But if it cannot be determined with which parent the child normally would have lived or if the child would not have lived with either parent that night, the child is treated as not living with either parent that night. 1040 Parent works at night. 1040   If, due to a parent's nighttime work schedule, a child lives for a greater number of days, but not nights, with the parent who works at night, that parent is treated as the custodial parent. 1040 On a school day, the child is treated as living at the primary residence registered with the school. 1040 Example 1—child lived with one parent for a greater number of nights. 1040 You and your child’s other parent are divorced. 1040 In 2013, your child lived with you 210 nights and with the other parent 155 nights. 1040 You are the custodial parent. 1040 Example 2—child is away at camp. 1040 In 2013, your daughter lives with each parent for alternate weeks. 1040 In the summer, she spends 6 weeks at summer camp. 1040 During the time she is at camp, she is treated as living with you for 3 weeks and with her other parent, your ex-spouse, for 3 weeks because this is how long she would have lived with each parent if she had not attended summer camp. 1040 Example 3—child lived same number of nights with each parent. 1040 Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. 1040 Your AGI is $40,000. 1040 Your ex-spouse's AGI is $25,000. 1040 You are treated as your son's custodial parent because you have the higher AGI. 1040 Example 4—child is at parent’s home but with other parent. 1040 Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. 1040 You become ill and are hospitalized. 1040 The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. 1040 Your son is treated as living with you during this 10-day period because he was living in your home. 1040 Example 5—child emancipated in May. 1040 When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. 1040 As a result, he is not considered in the custody of his parents for more than half of the year. 1040 The special rule for children of divorced or separated parents does not apply. 1040 Example 6—child emancipated in August. 1040 Your daughter lives with you from January 1, 2013, until May 31, 2013, and lives with her other parent, your ex-spouse, from June 1, 2013, through the end of the year. 1040 She turns 18 and is emancipated under state law on August 1, 2013. 1040 Because she is treated as not living with either parent beginning on August 1, she is treated as living with you the greater number of nights in 2013. 1040 You are the custodial parent. 1040 Written declaration. 1040    The custodial parent may use either Form 8332 or a similar statement (containing the same information required by the form) to make the written declaration to release the exemption to the noncustodial parent. 1040 The noncustodial parent must attach a copy of the form or statement to his or her tax return. 1040   The exemption can be released for 1 year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. 1040 Post-1984 and pre-2009 divorce decree or separation agreement. 1040   If the divorce decree or separation agreement went into effect after 1984 and before 2009, the noncustodial parent may be able to attach certain pages from the decree or agreement instead of Form 8332. 1040 The decree or agreement must state all three of the following. 1040 The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. 1040 The custodial parent will not claim the child as a dependent for the year. 1040 The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. 1040   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her tax return. 1040 The cover page (write the other parent's social security number on this page). 1040 The pages that include all of the information identified in items (1) through (3) above. 1040 The signature page with the other parent's signature and the date of the agreement. 1040 Post-2008 divorce decree or separation agreement. 1040   The noncustodial parent cannot attach pages from the decree or agreement instead of Form 8332 if the decree or agreement went into effect after 2008. 1040 The custodial parent must sign either Form 8332 or a similar statement whose only purpose is to release the custodial parent's claim to an exemption for a child, and the noncustodial parent must attach a copy to his or her return. 1040 The form or statement must release the custodial parent's claim to the child without any conditions. 1040 For example, the release must not depend on the noncustodial parent paying support. 1040    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. 1040 Revocation of release of claim to an exemption. 1040   The custodial parent can revoke a release of claim to exemption that he or she previously released to the noncustodial parent on Form 8332 (or a similar statement). 1040 For the revocation to be effective for 2013, the custodial parent must have given (or made reasonable efforts to give) written notice of the revocation to the noncustodial parent in 2012 or earlier. 1040 The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. 1040 Remarried parent. 1040   If you remarry, the support provided by your new spouse is treated as provided by you. 1040 Parents who never married. 1040   This special rule for divorced or separated parents also applies to parents who never married, and who lived apart at all times during the last 6 months of the year. 1040 Support Test (To Be a Qualifying Child) To meet this test, the child cannot have provided more than half of his or her own support for the year. 1040 This test is different from the support test to be a qualifying relative, which is described later. 1040 However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. 1040 If you are not sure whether a child provided more than half of his or her own support, you may find Worksheet 3-1 helpful. 1040 Worksheet 3-1. 1040 Worksheet for Determining Support Funds Belonging to the Person You Supported       1. 1040 Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year. 1040 Do not include funds provided by the state; include those amounts on line 23 instead 1. 1040     2. 1040 Enter the amount on line 1 that was used for the person's support 2. 1040     3. 1040 Enter the amount on line 1 that was used for other purposes 3. 1040     4. 1040 Enter the total amount in the person's savings and other accounts at the end of the year 4. 1040     5. 1040 Add lines 2 through 4. 1040 (This amount should equal line 1. 1040 ) 5. 1040     Expenses for Entire Household (where the person you supported lived)       6. 1040 Lodging (complete line 6a or 6b):         a. 1040 Enter the total rent paid 6a. 1040       b. 1040 Enter the fair rental value of the home. 1040 If the person you supported owned the home,  also include this amount in line 21 6b. 1040     7. 1040 Enter the total food expenses 7. 1040     8. 1040 Enter the total amount of utilities (heat, light, water, etc. 1040 not included in line 6a or 6b) 8. 1040     9. 1040 Enter the total amount of repairs (not included in line 6a or 6b) 9. 1040     10. 1040 Enter the total of other expenses. 1040 Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance 10. 1040     11. 1040 Add lines 6a through 10. 1040 These are the total household expenses 11. 1040     12. 1040 Enter total number of persons who lived in the household 12. 1040     Expenses for the Person You Supported       13. 1040 Divide line 11 by line 12. 1040 This is the person's share of the household expenses 13. 1040     14. 1040 Enter the person's total clothing expenses 14. 1040     15. 1040 Enter the person's total education expenses 15. 1040     16. 1040 Enter the person's total medical and dental expenses not paid for or reimbursed by insurance 16. 1040     17. 1040 Enter the person's total travel and recreation expenses 17. 1040     18. 1040 Enter the total of the person's other expenses 18. 1040     19. 1040 Add lines 13 through 18. 1040 This is the total cost of the person's support for the year 19. 1040     Did the Person Provide More Than Half of His or Her Own Support?       20. 1040 Multiply line 19 by 50% (. 1040 50) 20. 1040     21. 1040 Enter the amount from line 2, plus the amount from line 6b if the person you supported owned  the home. 1040 This is the amount the person provided for his or her own support 21. 1040     22. 1040 Is line 21 more than line 20?   No. 1040 You meet the support test for this person to be your qualifying child. 1040 If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. 1040 Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. 1040    Yes. 1040 You do not meet the support test for this person to be either your qualifying child or your qualifying relative. 1040 Stop here. 1040        Did You Provide More Than Half?       23. 1040 Enter the amount others provided for the person's support. 1040 Include amounts provided by state, local, and other welfare societies or agencies. 1040 Do not include any amounts included on line 1 23. 1040     24. 1040 Add lines 21 and 23 24. 1040     25. 1040 Subtract line 24 from line 19. 1040 This is the amount you provided for the person's support 25. 1040     26. 1040 Is line 25 more than line 20?   Yes. 1040 You meet the support test for this person to be your qualifying relative. 1040    No. 1040 You do not meet the support test for this person to be your qualifying relative. 1040 You cannot claim an exemption for this person unless you can do so under a multiple support agreement, the support test for children of divorced or separated parents, or the special rule for kidnapped children. 1040 See Multiple Support Agreement or Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart) , or Kidnapped child under Qualifying Relative. 1040   Example. 1040 You provided $4,000 toward your 16-year-old son's support for the year. 1040 He has a part-time job and provided $6,000 to his own support. 1040 He provided more than half of his own support for the year. 1040 He is not your qualifying child. 1040 Foster care payments and expenses. 1040   Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. 1040 Similarly, payments you receive for the support of a foster child from a state or county are considered support provided by the state or county. 1040   If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions but are not considered support you provided. 1040 For more information about the deduction for charitable contributions, see chapter 24. 1040 If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided. 1040   If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you. 1040 Example 1. 1040 Lauren, a foster child, lived with Mr. 1040 and Mrs. 1040 Smith for the last 3 months of the year. 1040 The Smiths cared for Lauren because they wanted to adopt her (although she had not been placed with them for adoption). 1040 They did not care for her as a trade or business or to benefit the agency that placed her in their home. 1040 The Smiths' unreimbursed expenses are not deductible as charitable contributions but are considered support they provided for Lauren. 1040 Example 2. 1040 You provided $3,000 toward your 10-year-old foster child's support for the year. 1040 The state government provided $4,000, which is considered support provided by the state, not by the child. 1040 See Support provided by the state (welfare, food stamps, housing, etc. 1040 ) , later. 1040 Your foster child did not provide more than half of her own support for the year. 1040 Scholarships. 1040   A scholarship received by a child who is a student is not taken into account in determining whether the child provided more than half of his or her own support. 1040 Joint Return Test (To Be a Qualifying Child) To meet this test, the child cannot file a joint return for the year. 1040 Exception. 1040   An exception to the joint return test applies if your child and his or her spouse file a joint return only to claim a refund of income tax withheld or estimated tax paid. 1040 Example 1—child files joint return. 1040 You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. 1040 He earned $25,000 for the year. 1040 The couple files a joint return. 1040 Because your daughter and her husband file a joint return, she is not your qualifying child. 1040 Example 2—child files joint return only as a claim for refund of withheld tax. 1040 Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. 1040 Neither is required to file a tax return. 1040 They do not have a child. 1040 Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. 1040 The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. 1040 Example 3—child files joint return to claim American opportunity credit. 1040 The facts are the same as in Example 2 except no taxes were taken out of your son's pay. 1040 He and his wife were not required to file a tax return. 1040 However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. 1040 Because claiming the American opportunity credit is their reason for filing the return, they are not filing it only to get a refund of income tax withheld or estimated tax paid. 1040 The exception to the joint return test does not apply, so your son is not your qualifying child. 1040 Special Rule for Qualifying Child of More Than One Person If your qualifying child is not a qualifying child of anyone else, this special rule does not apply to you and you do not need to read about it. 1040 This is also true if your qualifying child is not a qualifying child of anyone else except your spouse with whom you file a joint return. 1040 If a child is treated as the qualifying child of the noncustodial parent under the rules for children of divorced or separated parents (or parents who live apart) described earlier, see Applying this special rule to divorced or separated parents (or parents who live apart), later. 1040 Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. 1040 Although the child is a qualifying child of each of these persons, only one person can actually treat the child as a qualifying child to take all of the following tax benefits (provided the person is eligible for each benefit). 1040 The exemption for the child. 1040 The child tax credit. 1040 Head of household filing status. 1040 The credit for child and dependent care expenses. 1040 The exclusion from income for dependent care benefits. 1040 The earned income credit. 1040 The other person cannot take any of these benefits based on this qualifying child. 1040 In other words, you and the other person cannot agree to divide these benefits between you. 1040 The other person cannot take any of these tax benefits for a child unless he or she has a different qualifying child. 1040 Tiebreaker rules. 1040   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. 1040 If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. 1040 If the parents file a joint return together and can claim the child as a qualifying child, the child is treated as the qualifying child of the parents. 1040 If the parents do not file a joint return together but both parents claim the child as a qualifying child, the IRS will treat the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. 1040 If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year. 1040 If no parent can claim the child as a qualifying child, the child is treated as the qualifying child of the person who had the highest AGI for the year. 1040 If a parent can claim the child as a qualifying child but no parent does so claim the child, the child is treated as the qualifying child of the person who had the highest AGI for the year, but only if that person's AGI is higher than the highest AGI of any of the child's parents who can claim the child. 1040 If the child's parents file a joint return with each other, this rule can be applied by dividing the parents' combined AGI equally between the parents. 1040 See Example 6 . 1040   Subject to these tiebreaker rules, you and the other person may be able to choose which of you claims the child as a qualifying child. 1040 Example 1—child lived with parent and grandparent. 1040 You and your 3-year-old daughter Jane lived with your mother all year. 1040 You are 25 years old, unmarried, and your AGI is $9,000. 1040 Your mother's AGI is $15,000. 1040 Jane's father did not live with you or your daughter. 1040 You have not signed Form 8332 (or a similar statement) to release the child's exemption to the noncustodial parent. 1040 Jane is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. 1040 However, only one of you can claim her. 1040 Jane is not a qualifying child of anyone else, including her father. 1040 You agree to let your mother claim Jane. 1040 This means your mother can claim Jane as a qualifying child for all of the six tax benefits listed earlier, if she qualifies (and if you do not claim Jane as a qualifying child for any of those tax benefits). 1040 Example 2—parent has higher AGI than grandparent. 1040 The facts are the same as in Example 1 except your AGI is $18,000. 1040 Because your mother's AGI is not higher than yours, she cannot claim Jane. 1040 Only you can claim Jane. 1040 Example 3—two persons claim same child. 1040 The facts are the same as in Example 1 except that you and your mother both claim Jane as a qualifying child. 1040 In this case, you, as the child's parent, will be the only one allowed to claim Jane as a qualifying child. 1040 The IRS will disallow your mother's claim to the six tax benefits listed earlier unless she has another qualifying child. 1040 Example 4—qualifying children split between two persons. 1040 The facts are the same as in Example 1 except you also have two other young children who are qualifying children of both you and your mother. 1040 Only one of you can claim each child. 1040 However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. 1040 For example, if you claim one child, your mother can claim the other two. 1040 Example 5—taxpayer who is a qualifying child. 1040 The facts are the same as in Example 1 except you are only 18 years old and did not provide more than half of your own support for the year. 1040 This means you are your mother's qualifying child. 1040 If she can claim you as a dependent, then you cannot claim your daughter as a dependent because of the Dependent Taxpayer Test explained earlier. 1040 Example 6—child lived with both parents and grandparent. 1040 The facts are the same as in Example 1 except you are married to your daughter's father. 1040 The two of you live together with your daughter and your mother, and have an AGI of $20,000 on a joint return. 1040 If you and your husband do not claim your daughter as a qualifying child, your mother can claim her instead. 1040 Even though the AGI on your joint return, $20,000, is more than your mother's AGI of $15,000, for this purpose each parent's AGI can be treated as $10,000, so your mother's $15,000 AGI is treated as higher than the highest AGI of any of the child's parents who can claim the child. 1040 Example 7—separated parents. 1040 You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. 1040 In August and September, your son lived with you. 1040 For the rest of the year, your son lived with your husband, the boy's father. 1040 Your son is a qualifying child of both you and your husband because your son lived with each of you for more than half the year and because he met the relationship, age, support, and joint return tests for both of you. 1040 At the end of the year, you and your husband still were not divorced, legally separated, or separated under a written separation agreement, so the rule for children of divorced or separated parents (or parents who live apart) does not apply. 1040 You and your husband will file separate returns. 1040 Your husband agrees to let you treat your son as a qualifying child. 1040 This means, if your husband does not claim your son as a qualifying child, you can claim your son as a qualifying child for the dependency exemption, child tax credit, and exclusion for dependent care benefits (if you qualify for each of those tax benefits). 1040 However, you cannot claim head of household filing status because you and your husband did not live apart for the last 6 months of the year. 1040 As a result, your filing status is married filing separately, so you cannot claim the earned income credit or the credit for child and dependent care expenses. 1040 Example 8—separated parents claim same child. 1040 The facts are the same as in Example 7 except that you and your husband both claim your son as a qualifying child. 1040 In this case, only your husband will be allowed to treat your son as a qualifying child. 1040 This is because, during 2013, the boy lived with him longer than with you. 1040 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. 1040 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. 1040 In addition, because you and your husband did not live apart for the last 6 months of the year, your husband cannot claim head of household filing status. 1040 As a result, his filing status is married filing separately, so he cannot claim the earned income credit or the credit for child and dependent care expenses. 1040 Example 9—unmarried parents. 1040 You, your 5-year-old son, and your son's father lived together all year. 1040 You and your son's father are not married. 1040 Your son is a qualifying child of both you and his father because he meets the relationship, age, residency, support, and joint return tests for both you and his father. 1040 Your AGI is $12,000 and your son's father's AGI is $14,000. 1040 Your son's father agrees to let you claim the child as a qualifying child. 1040 This means you can claim him as a qualifying child for the dependency exemption, child tax credit, head of household filing status, credit for child and dependent care expenses, exclusion for dependent care benefits, and the earned income credit, if you qualify for each of those tax benefits (and if your son's father does not, in fact, claim your son as a qualifying child for any of those tax benefits). 1040 Example 10—unmarried parents claim same child. 1040 The facts are the same as in Example 9 except that you and your son's father both claim your son as a qualifying child. 1040 In this case, only your son's father will be allowed to treat your son as a qualifying child. 1040 This is because his AGI, $14,000, is more than your AGI, $12,000. 1040 If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. 1040 If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the earned income credit, head of household filing status, the credit for child and dependent care expenses, and the exclusion for dependent care benefits. 1040 Example 11—child did not live with a parent. 1040 You and your 7-year-old niece, your sister's child, lived with your mother all year. 1040 You are 25 years old, and your AGI is $9,300. 1040 Your mother's AGI is $15,000. 1040 Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. 1040 Your niece is a qualifying child of both you and your mother because she meets the relationship, age, residency, support, and joint return tests for both you and your mother. 1040 However, only your mother can treat her as a qualifying child. 1040 This is because your mother's AGI, $15,000, is more than your AGI, $9,300. 1040 Applying this special rule to divorced or separated parents (or parents who live apart). 1040   If a child is treated as the qualifying child of the noncustodial parent under the rules described earlier for children of divorced or separated parents (or parents who live apart), only the noncustodial parent can claim an exemption and the child tax credit for the child. 1040 However, the custodial parent, if eligible, or other eligible person can claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. 1040 If the child is the qualifying child of more than one person for these benefits, then the tiebreaker rules just explained determine which person can treat the child as a qualifying child. 1040 Example 1. 1040 You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. 1040 Your AGI is $10,000. 1040 Your mother's AGI is $25,000. 1040 Your son's father did not live with you or your son. 1040 Under the rules explained earlier for children of divorced or separated parents (or parents who live apart), your son is treated as the qualifying child of his father, who can claim an exemption and the child tax credit for him. 1040 Because of this, you cannot claim an exemption or the child tax credit for your son. 1040 However, your son's father cannot claim your son as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, or the earned income credit. 1040 You and your mother did not have any child care expenses or dependent care benefits, so neither of you can claim the credit for child and dependent care expenses or the exclusion for dependent care benefits. 1040 But the boy is a qualifying child of both you and your mother for head of household filing status and the earned income credit because he meets the relationship, age, residency, support, and joint return tests for both you and your mother. 1040 (Note: The support test does not apply for the earned income credit. 1040 ) However, you agree to let your mother claim your son. 1040 This means she can claim him for head of household filing status and the earned income credit if she qualifies for each and if you do not claim him as a qualifying child for the earned income credit. 1040 (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. 1040 ) Example 2. 1040 The facts are the same as in Example 1 except your AGI is $25,000 and your mother's AGI is $21,000. 1040 Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. 1040 Example 3. 1040 The facts are the same as in Example 1 except you and your mother both claim your son as a qualifying child for the earned income credit. 1040 Your mother also claims him as a qualifying child for head of household filing status. 1040 You, as the child's parent, will be the only one allowed to claim your son as a qualifying child for the earned income credit. 1040 The IRS will disallow your mother's claim to the earned income credit and head of household filing status unless she has another qualifying child. 1040 Qualifying Relative Four tests must be met for a person to be your qualifying relative. 1040 The four tests are: Not a qualifying child test, Member of household or relationship test, Gross income test, and Support test. 1040 Age. 1040   Unlike a qualifying child, a qualifying relative can be any age. 1040 There is no age test for a qualifying relative. 1040 Kidnapped child. 1040   You may be able to treat a child as your qualifying relative even if the child has been kidnapped. 1040 See Publication 501 for details. 1040 Not a Qualifying Child Test A child is not your qualifying relative if the child is your qualifying child or the qualifying child of any other taxpayer. 1040 Example 1. 1040 Your 22-year-old daughter, who is a student, lives with you and meets all the tests to be your qualifying child. 1040 She is not your qualifying relative. 1040 Example 2. 1040 Your 2-year-old son lives with your parents and meets all the tests to be their qualifying child. 1040 He is not your qualifying relative. 1040 Example 3. 1040 Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. 1040 He may be your qualifying relative if the gross income test and the support test are met. 1040 Example 4. 1040 Your 13-year-old grandson lived with his mother for 3 months, with his uncle for 4 months, and with you for 5 months during the year. 1040 He is not your qualifying child because he does not meet the residency test. 1040 He may be your qualifying relative if the gross income test and the support test are met. 1040 Child of person not required to file a return. 1040   A child is not the qualifying child of any other taxpayer and so may qualify as your qualifying relative if the child's parent (or other person for whom the child is defined as a qualifying child) is not required to file an income tax return and either: Does not file an income tax return, or Files a return only to get a refund of income tax withheld or estimated tax paid. 1040 Example 1—return not required. 1040 You support an unrelated friend and her 3-year-old child, who lived with you all year in your home. 1040 Your friend has no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. 1040 Both your friend and her child are your qualifying relatives if the support test is met. 1040 Example 2—return filed to claim refund. 1040 The facts are the same as in Example 1 except your friend had wages of $1,500 during the year and had income tax withheld from her wages. 1040 She files a return only to get a refund of the income tax withheld and does not claim the earned income credit or any other tax credits or deductions. 1040 Both your friend and her child are your qualifying relatives if the support test is met. 1040 Example 3—earned income credit claimed. 1040 The facts are the same as in Example 2 except your friend had wages of $8,000 during the year and claimed the earned income credit on her return. 1040 Your friend's child is the qualifying child of another taxpayer (your friend), so you cannot claim your friend's child as your qualifying relative. 1040 Child in Canada or Mexico. 1040   You may be able to claim your child as a dependent even if the child lives in Canada or Mexico. 1040 If the child does not live with you, the child does not meet the residency test to be your qualifying child. 1040 However, the child may still be your qualifying relative. 1040 If the persons the child does live with are not U. 1040 S. 1040 citizens and have no U. 1040 S. 1040 gross income, those persons are not “taxpayers,” so the child is not the qualifying child of any other taxpayer. 1040 If the child is not the qualifying child of any other taxpayer, the child is your qualifying relative as long as the gross income test and the support test are met. 1040   You cannot claim as a dependent a child who lives in a foreign country other than Canada or Mexico, unless the child is a U. 1040 S. 1040 citizen, U. 1040 S. 1040 resident alien, or U. 1040 S. 1040 national. 1040 There is an exception for certain adopted children who lived with you all year. 1040 See Citizen or Resident Test , earlier. 1040 Example. 1040 You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. 1040 You are single and live in the United States. 1040 Your mother is not a U. 1040 S. 1040 citizen and has no U. 1040 S. 1040 income, so she is not a “taxpayer. 1040 ” Your children are not your qualifying children because they do not meet the residency test. 1040 But since they are not the qualifying children of any other taxpayer, they are your qualifying relatives and you can claim them as dependents. 1040 You may also be able to claim your mother as a dependent if the gross income and support tests are met. 1040 Member of Household or Relationship Test To meet this test, a person must either: Live with you all year as a member of your household, or Be related to you in one of the ways listed under Relatives who do not have to live with you . 1040 If at any time during the year the person was your spouse, that person cannot be your qualifying relative. 1040 However, see Personal Exemptions , earlier. 1040 Relatives who do not have to live with you. 1040   A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test. 1040 Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). 1040 (A legally adopted child is considered your child. 1040 ) Your brother, sister, half brother, half sister, stepbrother, or stepsister. 1040 Your father, mother, grandparent, or other direct ancestor, but not foster parent. 1040 Your stepfather or stepmother. 1040 A son or daughter of your brother or sister. 1040 A son or daughter of your half brother or half sister. 1040 A brother or sister of your father or mother. 1040 Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. 1040 Any of these relationships that were established by marriage are not ended by death or divorce. 1040 Example. 1040 You and your wife began supporting your wife's father, a widower, in 2006. 1040 Your wife died in 2012. 1040 Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. 1040 You can claim him as a dependent if all other tests are met, including the gross income test and support test. 1040 Foster child. 1040   A foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. 1040 Joint return. 1040   If you file a joint return, the person can be related to either you or your spouse. 1040 Also, the person does not need to be related to the spouse who provides support. 1040   For example, your spouse's uncle who receives more than half of his support from you may be your qualifying relative, even though he does not live with you. 1040 However, if you and your spouse file separate returns, your spouse's uncle can be your qualifying relative only if he lives with you all year as a member of your household. 1040 Temporary absences. 1040   A person is considered to live with you as a member of your household during periods of time when one of you, or both, are temporarily absent due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. 1040   If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence may be considered temporary. 1040 Death or birth. 1040   A person who died during the year, but lived with you as a member of your household until death, will meet this test. 1040 The same is true for a child who was born during the year and lived with you as a member of your household for the rest of the year. 1040 The test is also met if a child lived with you as a member of your household except for any required hospital stay following birth. 1040   If your dependent died during the year and you otherwise qualify to claim an exemption for the dependent, you can still claim the exemption. 1040 Example. 1040 Your dependent mother died on January 15. 1040 She met the tests to be your qualifying relative. 1040 The other tests to claim an exemption for a dependent were also met. 1040 You can claim an exemption for her on your return. 1040 Local law violated. 1040   A person does not meet this test if at any time during the year the relationship between you and that person violates local law. 1040 Example. 1040 Your girlfriend lived with you as a member of your household all year. 1040 However, your relationship with her violated the laws of the state where you live, because she was married to someone else. 1040 Therefore, she does not meet this test and you cannot claim her as a dependent. 1040 Adopted child. 1040   An adopted child is always treated as your own child. 1040 The term “adopted child” includes a child who was lawfully placed with you for legal adoption. 1040 Cousin. 1040   Your cousin meets this test only if he or she lives with you all year as a member of your household. 1040 A cousin is a descendant of a brother or sister of your father or mother. 1040 Gross Income Test To meet this test, a person's gross income for the year must be less than $3,900. 1040 Gross income defined. 1040   Gross income is all income in the form of money, property, and services that is not exempt from tax. 1040   In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business. 1040   Gross receipts from rental property are gross income. 1040 Do not deduct taxes, repairs, or other expenses, to determine the gross income from rental property. 1040   Gross income includes a partner's share of the gross (not a share of the net) partnership income. 1040    Gross income also includes all taxable unemployment compensation and certain scholarship and fellowship grants. 1040 Scholarships received by degree candidates and used for tuition, fees, supplies, books, and equipment required for particular courses generally are not included in gross income. 1040 For more information about scholarships, see chapter 12. 1040   Tax-exempt income, such as certain social security benefits, is not included in gross income. 1040 Disabled dependent working at sheltered workshop. 1040   For purposes of the gross income test, the gross income of an individual who is permanently and totally disabled at any time during the year does not include income for services the individual performs at a sheltered workshop. 1040 The availability of medical care at the workshop must be the main reason for the individual's presence there. 1040 Also, the income must come solely from activities at the workshop that are incident to this medical care. 1040   A “sheltered workshop” is a school that: Provides special instruction or training designed to alleviate the disability of the individual, and Is operated by certain tax-exempt organizations, or by a state, a U. 1040 S. 1040 possession, a political subdivision of a state or possession, the United States, or the District of Columbia. 1040 “Permanently and totally disabled” has the same meaning here as under Qualifying Child, earlier. 1040 Support Test (To Be a Qualifying Relative) To meet this test, you generally must provide more than half of a person's total support during the calendar year. 1040 However, if two or more persons provide support, but no one person provides more than half of a person's total support, see Multiple Support Agreement , later. 1040 How to determine if support test is met. 1040   You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. 1040 This includes support the person provided from his or her own funds. 1040   You may find Worksheet 3-1 helpful in figuring whether you provided more than half of a person's support. 1040 Person's own funds not used for support. 1040   A person's own funds are not support unless they are actually spent for support. 1040 Example. 1040 Your mother received $2,400 in social security benefits and $300 in interest. 1040 She paid $2,000 for lodging and $400 for recreation. 1040 She put $300 in a savings account. 1040 Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. 1040 If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support. 1040 Child's wages used for own support. 1040   You cannot include in your contribution to your child's support any support paid for by the child with the child's own wages, even if you paid the wages. 1040 Year support is provided. 1040   The year you provide the support is the year you pay for it, even if you do so with borrowed money that you repay in a later year. 1040   If you use a fiscal year to report your income, you must provide more than half of the dependent's support for the calendar year in which your fiscal year begins. 1040 Armed Forces dependency allotments. 1040   The part of the allotment contributed by the government and the part taken out of your military pay are both considered provided by you in figuring whether you provide more than half of the support. 1040 If your allotment is used to support persons other than those you name, you can take the exemptions for them if they otherwise qualify. 1040 Example. 1040 You are in the Armed Forces. 1040 You authorize an allotment for your widowed mother that she uses to support herself and her sister. 1040 If the allotment provides more than half of each person's support, you can take an exemption for each of them, if they otherwise qualify, even though you authorize the allotment only for your mother. 1040 Tax-exempt military quarters allowances. 1040   These allowances are treated the same way as dependency allotments in figuring support. 1040 The allotment of pay and the tax-exempt basic allowance for quarters are both considered as provided by you for support. 1040 Tax-exempt income. 1040   In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. 1040 Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest. 1040 Example 1. 1040 You provide $4,000 toward your mother's support during the year. 1040 She has earned income of $600, nontaxable social security benefits of $4,800, and tax-exempt interest of $200. 1040 She uses all these for her support. 1040 You cannot claim an exemption for your mother because the $4,000 you provide is not more than half of her total support of $9,600 ($4,000 + $600 + $4,800 + $200). 1040 Example 2. 1040 Your niece takes out a student loan of $2,500 a