Do you help support an elderly relative like your mom or dad? If you meet the two-part test for qualifying relatives, you may claim an “extra” dependency exemption for a loved one, on top of exemptions claimed for your children that you support. Each exemption in 2017 is $4,050.

You’re entitled to take an exemption for a qualifying relative, such as your mother or father, only if you meet both of the following conditions:

  1. You provide more than half of that person’s total support for the year.
  2. The qualifying person’s gross income for the year doesn’t exceed the personal exemption amount of $4,050.

It’s the second item that often trips up taxpayers because the personal exemption amount is relatively low. Note, however, that this part of the test doesn’t apply to a qualifying child under age 19 or a full-time student under age 24.

On the positive side, while Social Security benefits are treated as support provided by the relative for himself or herself, they don’t count towards the “gross income” part of the test.

Let’s look at a hypothetical example. Assume you pay monthly rent of $1,200 for your mom. She receives $4,000 in annual taxable income from her investments and $10,000 in Social Security benefits. Thus, you provide more than half of her total support — $14,400 — in rent compared to her income of $14,000. Although she receives $10,000 in Social Security benefits, that case excluded, makes her gross income $4,000, which is less than the $4,050 personal exemption. As a result, you can claim the $4,050 dependency exemption for your mom in 2017.

If you’re running just short of the half-support mark for the year, you might increase your support to secure the extra dependency exemption. The support you provide may include food, housing, utilities, medical and dental bills, recreation, and transportation costs.

Finally, be aware that the tax benefits of personal exemptions, including dependency exemptions, are reduced for certain upper-income taxpayers. Give us a call to see if this applies to you.