Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

H&rblock Free Online

Irs FreeIrs Forms Amended ReturnIrs Forms 1040xCan I File 2012 Taxes In 2013How To Do Amended Tax ReturnState Tax FormsH&rblock Free OnlineAmending A Tax ReturnTax Forms 2012 Federal140ez 2011File State Taxes Online FreeTurbotax Download 2012Free Tax Return OnlineHow To File A 1040x With TurbotaxTax Amendment Form 20122011 Tax Act Deluxe Unlock CodeFile Back Tax2011 Tax Forms 1040 EzCan College Students File For TaxesWhere Can I File 2012 TaxesWww H & R BlockHow To File A 1040 EzFree Tax CalculatorFree Irs Tax Forms 2011Can You Still File 2012 TaxesOnline 1040nrHow To File 1040nr2011 1040 Tax FormE File IrsLong Amended Tax ReturnCan You E File A 1040xFile 2005 Taxes FreeWww.irs.gov Form 1040xFree 2012 State Tax FilingFree 1040 EzAmend My 2011 TaxState Income Tax Forms 2011Free Online Tax Filing State FederalFederal Tax Forms 2009Free Sites For Filing State Income Taxes

H&rblock Free Online

H&rblock free online 4. H&rblock free online   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. H&rblock free online Payments from checking accounts. H&rblock free online Amounts paid within 30 days. H&rblock free online Optional method for determining date of reallocation. H&rblock free online Interest on a segregated account. H&rblock free online How to report. H&rblock free online Interest You Can DeductStatement. H&rblock free online Expenses paid to obtain a mortgage. H&rblock free online Prepayment penalty. H&rblock free online De minimis OID. H&rblock free online Constant-yield method. H&rblock free online Loan or mortgage ends. H&rblock free online Interest You Cannot DeductPenalties. H&rblock free online Who is a key person? Exceptions for pre-June 1997 contracts. H&rblock free online Interest allocated to unborrowed policy cash value. H&rblock free online Capitalization of Interest When To Deduct InterestPrepaid interest. H&rblock free online Discounted loan. H&rblock free online Refunds of interest. H&rblock free online Prepaid interest. H&rblock free online Discounted loan. H&rblock free online Tax deficiency. H&rblock free online Related person. H&rblock free online Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. H&rblock free online Introduction This chapter discusses the tax treatment of business interest expense. H&rblock free online Business interest expense is an amount charged for the use of money you borrowed for business activities. H&rblock free online Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. H&rblock free online Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. H&rblock free online 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. H&rblock free online Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. H&rblock free online If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. H&rblock free online Allocate your interest expense to the following categories. H&rblock free online Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. H&rblock free online You allocate loan proceeds by tracing disbursements to specific uses. H&rblock free online The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. H&rblock free online Secured loan. H&rblock free online   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. H&rblock free online Example. H&rblock free online You secure a loan with property used in your business. H&rblock free online You use the loan proceeds to buy an automobile for personal use. H&rblock free online You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. H&rblock free online    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. H&rblock free online The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. H&rblock free online For more information, see Publication 936. H&rblock free online Allocation period. H&rblock free online   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. H&rblock free online The date the loan is repaid. H&rblock free online The date the loan is reallocated to another use. H&rblock free online Proceeds not disbursed to borrower. H&rblock free online   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. H&rblock free online This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. H&rblock free online Proceeds deposited in borrower's account. H&rblock free online   Treat loan proceeds deposited in an account as property held for investment. H&rblock free online It does not matter whether the account pays interest. H&rblock free online Any interest you pay on the loan is investment interest expense. H&rblock free online If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. H&rblock free online Example. H&rblock free online Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. H&rblock free online No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. H&rblock free online On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. H&rblock free online On September 4, Celina uses an additional $40,000 from the account for personal purposes. H&rblock free online Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. H&rblock free online From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. H&rblock free online From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. H&rblock free online Order of funds spent. H&rblock free online   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. H&rblock free online Any unborrowed amounts held in the same account. H&rblock free online Any amounts deposited after these loan proceeds. H&rblock free online Example. H&rblock free online On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. H&rblock free online The following table shows the transactions in her account during the tax year. H&rblock free online Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. H&rblock free online She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. H&rblock free online She treats the $800 used for an investment as made entirely from the proceeds of Loan C. H&rblock free online She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. H&rblock free online For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. H&rblock free online Payments from checking accounts. H&rblock free online   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. H&rblock free online You can treat checks written on the same day as written in any order. H&rblock free online Amounts paid within 30 days. H&rblock free online   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. H&rblock free online This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. H&rblock free online   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. H&rblock free online If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. H&rblock free online   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. H&rblock free online Example. H&rblock free online Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. H&rblock free online Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. H&rblock free online Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. H&rblock free online Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. H&rblock free online In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. H&rblock free online Optional method for determining date of reallocation. H&rblock free online   You can use the following method to determine the date loan proceeds are reallocated to another use. H&rblock free online You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. H&rblock free online The first day of that month. H&rblock free online The date the loan proceeds are deposited in the account. H&rblock free online However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. H&rblock free online Interest on a segregated account. H&rblock free online   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. H&rblock free online When the interest earned is used up, any remaining payments are from loan proceeds. H&rblock free online Example. H&rblock free online You borrowed $20,000 and used the proceeds of this loan to open a new savings account. H&rblock free online When the account had earned interest of $867, you withdrew $20,000 for personal purposes. H&rblock free online You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). H&rblock free online All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. H&rblock free online The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. H&rblock free online The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. H&rblock free online Loan repayment. H&rblock free online   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. H&rblock free online Personal use. H&rblock free online Investments and passive activities (other than those included in (3)). H&rblock free online Passive activities in connection with a rental real estate activity in which you actively participate. H&rblock free online Former passive activities. H&rblock free online Trade or business use and expenses for certain low-income housing projects. H&rblock free online Line of credit (continuous borrowings). H&rblock free online   The following rules apply if you have a line of credit or similar arrangement. H&rblock free online Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. H&rblock free online Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. H&rblock free online Treat these loans as repaid in the order shown on the loan agreement. H&rblock free online Loan refinancing. H&rblock free online   Allocate the replacement loan to the same uses to which the repaid loan was allocated. H&rblock free online Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. H&rblock free online Debt-financed distribution. H&rblock free online   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. H&rblock free online The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. H&rblock free online How to report. H&rblock free online   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). H&rblock free online If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). H&rblock free online If the proceeds were used in an investment activity, enter the interest on Form 4952. H&rblock free online If the proceeds are used for personal purposes, the interest is generally not deductible. H&rblock free online Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. H&rblock free online Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. H&rblock free online It does not matter what type of property secures the loan. H&rblock free online You can deduct interest on a debt only if you meet all the following requirements. H&rblock free online You are legally liable for that debt. H&rblock free online Both you and the lender intend that the debt be repaid. H&rblock free online You and the lender have a true debtor-creditor relationship. H&rblock free online Partial liability. H&rblock free online   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. H&rblock free online Example. H&rblock free online You and your brother borrow money. H&rblock free online You are liable for 50% of the note. H&rblock free online You use your half of the loan in your business, and you make one-half of the loan payments. H&rblock free online You can deduct your half of the total interest payments as a business deduction. H&rblock free online Mortgage. H&rblock free online   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. H&rblock free online However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. H&rblock free online Statement. H&rblock free online   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. H&rblock free online You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. H&rblock free online A governmental unit is a person for purposes of furnishing the statement. H&rblock free online   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. H&rblock free online You cannot deduct this amount. H&rblock free online For information on how to report this refund, see Refunds of interest, later in this chapter. H&rblock free online Expenses paid to obtain a mortgage. H&rblock free online   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. H&rblock free online These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. H&rblock free online If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. H&rblock free online Prepayment penalty. H&rblock free online   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. H&rblock free online Interest on employment tax deficiency. H&rblock free online   Interest charged on employment taxes assessed on your business is deductible. H&rblock free online Original issue discount (OID). H&rblock free online   OID is a form of interest. H&rblock free online A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. H&rblock free online The OID is the difference between the stated redemption price at maturity and the issue price of the loan. H&rblock free online   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. H&rblock free online Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. H&rblock free online You generally deduct OID over the term of the loan. H&rblock free online Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. H&rblock free online De minimis OID. H&rblock free online   The OID is de minimis if it is less than one-fourth of 1% (. H&rblock free online 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). H&rblock free online   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. H&rblock free online On a constant-yield basis over the term of the loan. H&rblock free online On a straight-line basis over the term of the loan. H&rblock free online In proportion to stated interest payments. H&rblock free online In its entirety at maturity of the loan. H&rblock free online You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. H&rblock free online Example. H&rblock free online On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. H&rblock free online The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. H&rblock free online Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. H&rblock free online The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . H&rblock free online 0025 × 10). H&rblock free online You choose to deduct the OID on a straight-line basis over the term of the loan. H&rblock free online Beginning in 2013, you can deduct $150 each year for 10 years. H&rblock free online Constant-yield method. H&rblock free online   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. H&rblock free online You figure your deduction for the first year using the following steps. H&rblock free online Determine the issue price of the loan. H&rblock free online Generally, this equals the proceeds of the loan. H&rblock free online If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. H&rblock free online Multiply the result in (1) by the yield to maturity. H&rblock free online Subtract any qualified stated interest payments from the result in (2). H&rblock free online This is the OID you can deduct in the first year. H&rblock free online   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). H&rblock free online To get the adjusted issue price, add to the issue price any OID previously deducted. H&rblock free online Then follow steps (2) and (3) above. H&rblock free online   The yield to maturity is generally shown in the literature you receive from your lender. H&rblock free online If you do not have this information, consult your lender or tax advisor. H&rblock free online In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. H&rblock free online Example. H&rblock free online The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. H&rblock free online The yield to maturity on your loan is 10. H&rblock free online 2467%, compounded annually. H&rblock free online For 2013, you can deduct $93 [($98,500 × . H&rblock free online 102467) − $10,000]. H&rblock free online For 2014, you can deduct $103 [($98,593 × . H&rblock free online 102467) − $10,000]. H&rblock free online Loan or mortgage ends. H&rblock free online   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. H&rblock free online A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. H&rblock free online If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. H&rblock free online See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. H&rblock free online Points. H&rblock free online   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. H&rblock free online These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. H&rblock free online If any of these charges (points) are solely for the use of money, they are interest. H&rblock free online   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. H&rblock free online However, you can choose to fully deduct points in the year paid if you meet certain tests. H&rblock free online For exceptions to the general rule, see Publication 936. H&rblock free online The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. H&rblock free online Partial payments on a nontax debt. H&rblock free online   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. H&rblock free online You can deduct only the interest. H&rblock free online This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. H&rblock free online Installment purchase. H&rblock free online   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. H&rblock free online If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). H&rblock free online The amount recharacterized as interest reduces your basis in the property and increases your interest expense. H&rblock free online For more information on installment sales and unstated interest, see Publication 537. H&rblock free online Interest You Cannot Deduct Certain interest payments cannot be deducted. H&rblock free online In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. H&rblock free online You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. H&rblock free online Interest paid with funds borrowed from original lender. H&rblock free online   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. H&rblock free online You can deduct the interest expense once you start making payments on the new loan. H&rblock free online   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. H&rblock free online All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. H&rblock free online Capitalized interest. H&rblock free online   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. H&rblock free online See Capitalization of Interest, later. H&rblock free online In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. H&rblock free online Add this interest to the basis of the property. H&rblock free online Commitment fees or standby charges. H&rblock free online   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. H&rblock free online You may be able to deduct them as business expenses. H&rblock free online   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. H&rblock free online See Capitalization of Interest, later. H&rblock free online Interest on income tax. H&rblock free online   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. H&rblock free online Treat this interest as a business deduction only in figuring a net operating loss deduction. H&rblock free online Penalties. H&rblock free online   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. H&rblock free online You cannot deduct them. H&rblock free online Generally, you cannot deduct any fines or penalties. H&rblock free online Interest on loans with respect to life insurance policies. H&rblock free online   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. H&rblock free online   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. H&rblock free online However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. H&rblock free online Who is a key person?   A key person is an officer or 20% owner. H&rblock free online However, the number of individuals you can treat as key persons is limited to the greater of the following. H&rblock free online Five individuals. H&rblock free online The lesser of 5% of the total officers and employees of the company or 20 individuals. H&rblock free online Exceptions for pre-June 1997 contracts. H&rblock free online   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. H&rblock free online If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. H&rblock free online Interest allocated to unborrowed policy cash value. H&rblock free online   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. H&rblock free online This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. H&rblock free online For more information, see section 264(f) of the Internal Revenue Code. H&rblock free online Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. H&rblock free online The property must be produced by you for use in your trade or business or for sale to customers. H&rblock free online You cannot capitalize interest related to property that you acquire in any other manner. H&rblock free online Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. H&rblock free online Designated property is any of the following. H&rblock free online Real property. H&rblock free online Tangible personal property with a class life of 20 years or more. H&rblock free online Tangible personal property with an estimated production period of more than 2 years. H&rblock free online Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. H&rblock free online Property you produce. H&rblock free online   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. H&rblock free online Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. H&rblock free online Carrying charges. H&rblock free online   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. H&rblock free online You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. H&rblock free online For more information, see chapter 7. H&rblock free online Capitalized interest. H&rblock free online   Treat capitalized interest as a cost of the property produced. H&rblock free online You recover your interest when you sell or use the property. H&rblock free online If the property is inventory, recover capitalized interest through cost of goods sold. H&rblock free online If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. H&rblock free online Partnerships and S corporations. H&rblock free online   The interest capitalization rules are applied first at the partnership or S corporation level. H&rblock free online The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. H&rblock free online   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. H&rblock free online You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. H&rblock free online To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. H&rblock free online Additional information. H&rblock free online   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. H&rblock free online For more information, see sections 1. H&rblock free online 263A-8 through 1. H&rblock free online 263A-15 of the regulations and Notice 88-99. H&rblock free online Notice 88-99 is in Cumulative Bulletin 1988-2. H&rblock free online When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. H&rblock free online Cash method. H&rblock free online   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. H&rblock free online You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. H&rblock free online Prepaid interest. H&rblock free online   You generally cannot deduct any interest paid before the year it is due. H&rblock free online Interest paid in advance can be deducted only in the tax year in which it is due. H&rblock free online Discounted loan. H&rblock free online   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. H&rblock free online For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. H&rblock free online Refunds of interest. H&rblock free online   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. H&rblock free online If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. H&rblock free online Accrual method. H&rblock free online   Under an accrual method, you can deduct only interest that has accrued during the tax year. H&rblock free online Prepaid interest. H&rblock free online   See Prepaid interest, earlier. H&rblock free online Discounted loan. H&rblock free online   See Discounted loan, earlier. H&rblock free online Tax deficiency. H&rblock free online   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. H&rblock free online If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. H&rblock free online   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. H&rblock free online Related person. H&rblock free online   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. H&rblock free online The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. H&rblock free online See section 267 of the Internal Revenue Code for more information. H&rblock free online Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. H&rblock free online See Treatment of gift and demand loans, later, in this discussion. H&rblock free online A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. H&rblock free online A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. H&rblock free online A loan in exchange for a note that requires the payment of interest at the applicable federal rate. H&rblock free online An additional payment in an amount equal to the forgone interest. H&rblock free online The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. H&rblock free online Forgone interest. H&rblock free online   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. H&rblock free online Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. H&rblock free online Internal Revenue Bulletins are available on the IRS web site at www. H&rblock free online irs. H&rblock free online gov/irb. H&rblock free online You can also contact an IRS office to get these rates. H&rblock free online Loans subject to the rules. H&rblock free online   The rules for below-market loans apply to the following. H&rblock free online Gift loans (below-market loans where the forgone interest is in the nature of a gift). H&rblock free online Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). H&rblock free online Corporation-shareholder loans. H&rblock free online Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). H&rblock free online Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). H&rblock free online   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. H&rblock free online Treatment of gift and demand loans. H&rblock free online   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. H&rblock free online ) equal to the forgone interest on the loan. H&rblock free online You are then treated as transferring this amount back to the lender as interest. H&rblock free online These transfers are considered to occur annually, generally on December 31. H&rblock free online If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. H&rblock free online The lender must report it as interest income. H&rblock free online Limit on forgone interest for gift loans of $100,000 or less. H&rblock free online   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. H&rblock free online This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. H&rblock free online If the borrower's net investment income is $1,000 or less, it is treated as zero. H&rblock free online This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. H&rblock free online Treatment of term loans. H&rblock free online   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. H&rblock free online ) on the date the loan is made. H&rblock free online This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. H&rblock free online The same amount is treated as original issue discount on the loan. H&rblock free online See Original issue discount (OID) under Interest You Can Deduct, earlier. H&rblock free online Exceptions for loans of $10,000 or less. H&rblock free online   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. H&rblock free online This exception applies only to the following. H&rblock free online Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. H&rblock free online Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. H&rblock free online This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. H&rblock free online Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. H&rblock free online Exceptions for loans without significant tax effect. H&rblock free online   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. H&rblock free online Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. H&rblock free online Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. H&rblock free online Certain employee-relocation loans. H&rblock free online Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. H&rblock free online S. H&rblock free online trade or business and not exempt from U. H&rblock free online S. H&rblock free online tax under an income tax treaty. H&rblock free online Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. H&rblock free online Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. H&rblock free online Consider all the following factors. H&rblock free online Whether items of income and deduction generated by the loan offset each other. H&rblock free online The amount of the items. H&rblock free online The cost of complying with the below-market loan provisions if they were to apply. H&rblock free online Any reasons, other than taxes, for structuring the transaction as a below-market loan. H&rblock free online Exception for loans to qualified continuing care facilities. H&rblock free online   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. H&rblock free online A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. H&rblock free online Designed to provide services under continuing care contracts (defined below). H&rblock free online Includes an independent living unit, and either an assisted living or nursing facility, or both. H&rblock free online Substantially all of the independent living unit residents are covered by continuing care contracts. H&rblock free online A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. H&rblock free online The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. H&rblock free online The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. H&rblock free online The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. H&rblock free online For more information, see section 7872(h) of the Internal Revenue Code. H&rblock free online Sale or exchange of property. H&rblock free online   Different rules generally apply to a loan connected with the sale or exchange of property. H&rblock free online If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. H&rblock free online However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. H&rblock free online See Unstated Interest and Original Issue Discount (OID) in Publication 537. H&rblock free online More information. H&rblock free online   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. H&rblock free online 7872-5 of the regulations. H&rblock free online Prev  Up  Next   Home   More Online Publications
Español

Oops! We can't find the file

Official information and services from the U.S. government

We're sorry, but the page you're looking for might have been removed, had its name changed, or is temporarily unavailable.

What should you do?

  • If you typed the page url, check the spelling.
  • Go to our home page and browse through our topics for the information you want.
  • Go to our site index, and look through the alphabetical listing for links to the page you want.
  • If you need help finding government information, please contact us.
  • Use our search engine to find the information you want.

The H&rblock Free Online

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