The qualifying relative rules allow you to claim an adult dependent if you can satisfy a number of tests. One of the tests require that you provide more than half of the adult dependent’s financial support, which always includes living expenses. By following some simple IRS guidelines, you may quickly and easily calculate the financial resources you contribute to your dependent’s living expenses.
Calculate total household expenses. One of the more substantial living expenses you will incur is that for housing. If you rent your home, you may include the annual rent payments. If you own the home in which you and your dependent live, the IRS requires you to calculate the fair rental value of the home. In addition to your housing expenses, you may add the annual cost of purchasing food for all members of your household, the utilities for which you pay, such as heat, water and electricity, plus the cost of repairs to the home. And although you can increase your annual household expenses with some reasonable miscellaneous expenses, you may never include the mortgage interest, real estate taxes or insurance payments you make.
Allocate annual household expenses. The total household expenses you incur for the year benefits all members of your household. Therefore, it’s necessary to divide the total living expense by the number of people living in your home, including your adult dependent. The result is the annual living expenses you incur for the benefit of the dependent.
Calculate living expenses for which only the dependent benefits. An individual’s living expenses include more than just the cost of food and shelter. They also include the clothes you purchase for him, the tuition and fees you pay so he can enroll in school, the cost of obtaining medical and dental care and transportation expenses.
Determine the dependent’s financial contribution. The IRS requires that you be financially responsible for more than 50 percent of the dependent’s living expenses. Therefore, add to their other personal living expenses the amount of household expenses you allocate to the dependent. If the dependent provides the funds for at least half of the total, you will fail the qualifying relative support test and may not claim the adult as your dependent.
The IRS will still allow you to claim the adult dependent if he has sufficient funds to pay for his own living expenses but chooses not to do so. The focus is on who actually pays the living expenses — not the dependent’s ability to pay.
Items you will need
- Worksheet 1 from IRS Publication 501