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My turbotax 5. My turbotax   Additional Rules for Listed Property Table of Contents Introduction Useful Items - You may want to see: What Is Listed Property?Passenger Automobiles Other Property Used for Transportation Computers and Related Peripheral Equipment Can Employees Claim a Deduction? What Is the Business-Use Requirement?How To Allocate Use Qualified Business Use Recapture of Excess Depreciation Lessee's Inclusion Amount Do the Passenger Automobile Limits Apply?Maximum Depreciation Deduction Deductions After the Recovery Period Deductions For Passenger Automobiles Acquired in a Trade-in What Records Must Be Kept?Adequate Records How Is Listed Property Information Reported? Introduction This chapter discusses the deduction limits and other special rules that apply to certain listed property. My turbotax Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers. My turbotax Deductions for listed property (other than certain leased property) are subject to the following special rules and limits. My turbotax Deduction for employees. My turbotax If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee. My turbotax Business-use requirement. My turbotax If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. My turbotax In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. My turbotax You may also have to recapture (include in income) any excess depreciation claimed in previous years. My turbotax A similar inclusion amount applies to certain leased property. My turbotax Passenger automobile limits and rules. My turbotax Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. My turbotax You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period. My turbotax This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. My turbotax It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return. My turbotax Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 587 Business Use of Your Home (Including Use by Daycare Providers) Form (and Instructions) 2106 Employee Business Expenses 2106-EZ Unreimbursed Employee Business Expenses 4562 Depreciation and Amortization 4797 Sales of Business Property See chapter 6 for information about getting publications and forms. My turbotax What Is Listed Property? Listed property is any of the following. My turbotax Passenger automobiles (as defined later). My turbotax Any other property used for transportation, unless it is an excepted vehicle. My turbotax Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment). My turbotax Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. My turbotax A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587. My turbotax Improvements to listed property. My turbotax   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. My turbotax The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. My turbotax For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method. My turbotax Passenger Automobiles A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). My turbotax It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile. My turbotax The following vehicles are not considered passenger automobiles for these purposes. My turbotax An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business. My turbotax A vehicle used directly in the trade or business of transporting persons or property for pay or hire. My turbotax A truck or van that is a qualified nonpersonal use vehicle. My turbotax Qualified nonpersonal use vehicles. My turbotax   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. My turbotax They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation , next. My turbotax They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. My turbotax For a detailed discussion of passenger automobiles, including leased passenger automobiles, see  Publication 463. My turbotax Other Property Used for Transportation Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” and are subject to the special rules for listed property. My turbotax Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods. My turbotax Excepted vehicles. My turbotax   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles ). My turbotax Clearly marked police and fire vehicles. My turbotax Unmarked vehicles used by law enforcement officers if the use is officially authorized. My turbotax Ambulances used as such and hearses used as such. My turbotax Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo. My turbotax Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks. My turbotax Combines, cranes and derricks, and forklifts. My turbotax Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat. My turbotax Qualified moving vans. My turbotax Qualified specialized utility repair trucks. My turbotax School buses used in transporting students and employees of schools. My turbotax Other buses with a capacity of at least 20 passengers that are used as passenger buses. My turbotax Tractors and other special purpose farm vehicles. My turbotax Clearly marked police and fire vehicle. My turbotax   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements. My turbotax It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit. My turbotax It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. My turbotax It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency. My turbotax It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. My turbotax A marking on a license plate is not a clear marking for these purposes. My turbotax Qualified moving van. My turbotax   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met. My turbotax No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another. My turbotax Personal use for travel to and from a move site happens no more than five times a month on average. My turbotax Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location. My turbotax Qualified specialized utility repair truck. My turbotax   A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply. My turbotax The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts. My turbotax Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes. My turbotax The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services. My turbotax Computers and Related Peripheral Equipment A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. My turbotax It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities. My turbotax Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer. My turbotax The following are neither computers nor related peripheral equipment. My turbotax Any equipment that is an integral part of other property that is not a computer. My turbotax Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment. My turbotax Equipment of a kind used primarily for the user's amusement or entertainment, such as video games. My turbotax Can Employees Claim a Deduction? If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. My turbotax The use of your property in performing services as an employee is a business use only if both the following requirements are met. My turbotax The use is for your employer's convenience. My turbotax The use is required as a condition of your employment. My turbotax If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee. My turbotax Employer's convenience. My turbotax   Whether the use of listed property is for your employer's convenience must be determined from all the facts. My turbotax The use is for your employer's convenience if it is for a substantial business reason of the employer. My turbotax The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience. My turbotax Condition of employment. My turbotax   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. My turbotax The use of property must be required for you to perform your duties properly. My turbotax Your employer does not have to require explicitly that you use the property. My turbotax However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient. My turbotax Example 1. My turbotax Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. My turbotax She owns and uses a motorcycle to deliver packages to downtown offices. My turbotax We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. My turbotax Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment. My turbotax Example 2. My turbotax Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. My turbotax He must travel to these sites on a regular basis. My turbotax Uplift does not furnish an automobile or explicitly require him to use his own automobile. My turbotax However, it pays him for any costs he incurs in traveling to the various sites. My turbotax The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment. My turbotax Example 3. My turbotax Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. My turbotax The use of his own car is neither for the convenience of Uplift nor required as a condition of employment. My turbotax Example 4. My turbotax Marilyn Lee is a pilot for Y Company, a small charter airline. My turbotax Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. My turbotax Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. My turbotax Marilyn owns her own airplane. My turbotax The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment. My turbotax Example 5. My turbotax David Rule is employed as an engineer with Zip, an engineering contracting firm. My turbotax He occasionally takes work home at night rather than work late in the office. My turbotax He owns and uses a home computer which is virtually identical to the office model. My turbotax His use of the computer is neither for the convenience of his employer nor required as a condition of employment. My turbotax What Is the Business-Use Requirement? You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. My turbotax To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. My turbotax If this requirement is not met, the following rules apply. My turbotax Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction. My turbotax Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance. My turbotax Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. My turbotax This rule applies each year of the recovery period. My turbotax Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use. My turbotax A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use. My turbotax Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. My turbotax It does not mean that you have to use the straight line method for other property in the same class as the item of listed property. My turbotax Exception for leased property. My turbotax   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property. My turbotax   You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. My turbotax This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. My turbotax Occasional or incidental leasing activity is insufficient. My turbotax For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. My turbotax An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee. My turbotax How To Allocate Use To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. My turbotax For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. My turbotax You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year. My turbotax For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). My turbotax For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year. My turbotax Entertainment use. My turbotax   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense. My turbotax Commuting use. My turbotax   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. My turbotax For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. My turbotax This is also true for a business meeting held in a car while commuting to work. My turbotax Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. My turbotax The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use. My turbotax Use of your automobile by another person. My turbotax   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies. My turbotax That use is directly connected with your business. My turbotax You properly report the value of the use as income to the other person and withhold tax on the income where required. My turbotax You are paid a fair market rent. My turbotax Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3). My turbotax Employee deductions. My turbotax   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. My turbotax See Can Employees Claim a Deduction , earlier. My turbotax Qualified Business Use Qualified business use of listed property is any use of the property in your trade or business. My turbotax However, it does not include the following uses. My turbotax The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property). My turbotax The use of property as pay for the services of a 5% owner or related person. My turbotax The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required. My turbotax Property does not stop being used predominantly for qualified business use because of a transfer at death. My turbotax Exception for leasing or compensatory use of aircraft. My turbotax   Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use. My turbotax 5% owner. My turbotax   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business. My turbotax   For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following. My turbotax More than 5% of the outstanding stock of the corporation. My turbotax Stock possessing more than 5% of the total combined voting power of all stock in the corporation. My turbotax Related persons. My turbotax   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 . My turbotax For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears. My turbotax Examples. My turbotax   The following examples illustrate whether the use of business property is qualified business use. My turbotax Example 1. My turbotax John Maple is the sole proprietor of a plumbing contracting business. My turbotax John employs his brother, Richard, in the business. My turbotax As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. My turbotax The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. My turbotax The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use. My turbotax Example 2. My turbotax John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. My turbotax He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. My turbotax This use of company automobiles by employees is not a qualified business use. My turbotax Example 3. My turbotax James Company Inc. My turbotax owns several automobiles that its employees use for business purposes. My turbotax The employees also are allowed to take the automobiles home at night. My turbotax The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. My turbotax This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company. My turbotax Investment Use The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. My turbotax However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year. My turbotax Example 1. My turbotax Sarah Bradley uses a home computer 50% of the time to manage her investments. My turbotax She also uses the computer 40% of the time in her part-time consumer research business. My turbotax Sarah's home computer is listed property because it is not used at a regular business establishment. My turbotax She does not use the computer predominantly for qualified business use. My turbotax Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. My turbotax She must depreciate it using the straight line method over the ADS recovery period. My turbotax Her combined business/investment use for determining her depreciation deduction is 90%. My turbotax Example 2. My turbotax If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. My turbotax She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. My turbotax Her combined business/investment use for determining her depreciation deduction is 90%. My turbotax Recapture of Excess Depreciation If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. My turbotax You also increase the adjusted basis of your property by the same amount. My turbotax Excess depreciation is: The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service. My turbotax To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period. My turbotax Example. My turbotax In June 2009, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. My turbotax She used it only for qualified business use for 2009 through 2012. My turbotax Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. My turbotax She began depreciating it using the 200% DB method over a 5-year GDS recovery period. My turbotax The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. My turbotax During 2013, she used the truck 50% for business and 50% for personal purposes. My turbotax She includes $4,018 excess depreciation in her gross income for 2013. My turbotax The excess depreciation is determined as follows. My turbotax Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2009 through 2012. My turbotax (Depreciation is from Table A-1. My turbotax ) $16,618 Minus: Depreciation allowable (Table A-8):     2009 – 10% of $18,000 $1,800   2010 – 20% of $18,000 3,600   2011 – 20% of $18,000 3,600   2012 – 20% of $18,000 3,600 12,600 Excess depreciation $4,018 If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2015, there will be no excess depreciation. My turbotax The total depreciation allowable using Table A-8 through 2015 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed. My turbotax Where to figure and report recapture. My turbotax   Use Form 4797, Part IV, to figure the recapture amount. My turbotax Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. My turbotax For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. My turbotax If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21. My turbotax Lessee's Inclusion Amount If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. My turbotax Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). My turbotax For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463. My turbotax The inclusion amount is the sum of Amount A and Amount B, described next. My turbotax However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year. My turbotax Amount A. My turbotax   Amount A is: The fair market value of the property, multiplied by The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A-19 in Appendix A . My turbotax   The fair market value of the property is the value on the first day of the lease term. My turbotax If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value. My turbotax Amount B. My turbotax   Amount B is: The fair market value of the property, multiplied by The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by The applicable percentage from Table A–20 in Appendix A . My turbotax Maximum inclusion amount. My turbotax   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income. My turbotax Inclusion amount worksheet. My turbotax   The following worksheet is provided to help you figure the inclusion amount for leased listed property. My turbotax Inclusion Amount Worksheet for Leased Listed Property 1. My turbotax Fair market value   2. My turbotax Business/investment use for first year business use is 50% or less   3. My turbotax Multiply line 1 by line 2. My turbotax   4. My turbotax Rate (%) from Table A-19   5. My turbotax Multiply line 3 by line 4. My turbotax This is Amount A. My turbotax   6. My turbotax Fair market value   7. My turbotax Average business/investment use for years property leased before the first year business use is 50% or less . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax . My turbotax   8. My turbotax Multiply line 6 by line 7   9. My turbotax Rate (%) from Table A-20   10. My turbotax Multiply line 8 by line 9. My turbotax This is Amount B. My turbotax   11. My turbotax Add line 5 and line 10. My turbotax This is your inclusion amount. My turbotax Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. My turbotax )         Example. My turbotax On February 1, 2011, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. My turbotax The lease is for a period of 5 years. My turbotax Larry does not use the computer at a regular business establishment, so it is listed property. My turbotax His business use of the property (all of which is qualified business use) is 80% in 2011, 60% in 2012, and 40% in 2013. My turbotax He must add an inclusion amount to gross income for 2013, the first tax year his qualified business-use percentage is 50% or less. My turbotax The computer has a 5-year recovery period under both GDS and ADS. My turbotax 2013 is the third tax year of the lease, so the applicable percentage from Table A-19 is −19. My turbotax 8%. My turbotax The applicable percentage from Table A-20 is 22. My turbotax 0%. My turbotax Larry's deductible rent for the computer for 2013 is $800. My turbotax Larry uses the Inclusion amount worksheet. My turbotax to figure the amount he must include in income for 2013. My turbotax His inclusion amount is $224, which is the sum of −$238 (Amount A) and $462 (Amount B). My turbotax Inclusion Amount Worksheet for Leased Listed Property 1. My turbotax Fair market value $3,000   2. My turbotax Business/investment use for first year business use is 50% or less 40 % 3. My turbotax Multiply line 1 by line 2. My turbotax 1,200   4. My turbotax Rate (%) from Table A-19 −19. My turbotax 8 % 5. My turbotax Multiply line 3 by line 4. My turbotax This is Amount A. My turbotax −238   6. My turbotax Fair market value 3,000   7. My turbotax Average business/investment use for years property leased before the first year business use is 50% or less 70 % 8. My turbotax Multiply line 6 by line 7 2,100   9. My turbotax Rate (%) from Table A-20 22. My turbotax 0 % 10. My turbotax Multiply line 8 by line 9. My turbotax This is Amount B. My turbotax 462   11. My turbotax Add line 5 and line 10. My turbotax This is your inclusion amount. My turbotax Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc. My turbotax ) $224           Lease beginning in the last 9 months of your tax year. My turbotax    The inclusion amount is subject to a special rule if all the following apply. My turbotax The lease term begins within 9 months before the close of your tax year. My turbotax You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year. My turbotax The lease term continues into your next tax year. My turbotax Under this special rule, add the inclusion amount to income in the next tax year. My turbotax Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. My turbotax Skip lines 6 through 9 of the worksheet and enter zero on line 10. My turbotax Example 1. My turbotax On August 1, 2012, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. My turbotax The property is 5-year property with a fair market value of $10,000. My turbotax Her property has a recovery period of 5 years under ADS. My turbotax The lease is for 5 years. My turbotax Her business use of the property was 50% in 2012 and 90% in 2013. My turbotax She paid rent of $3,600 for 2012, of which $3,240 is deductible. My turbotax She must include $147 in income in 2013. My turbotax The $147 is the sum of Amount A and Amount B. My turbotax Amount A is $147 ($10,000 × 70% × 2. My turbotax 1%), the product of the fair market value, the average business use for 2012 and 2013, and the applicable percentage for year one from Table A-19 . My turbotax Amount B is zero. My turbotax Lease for less than one year. My turbotax   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. My turbotax The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. My turbotax The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years). My turbotax   The lease term for listed property other than residential rental or nonresidential real property includes options to renew. My turbotax If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease. My turbotax Example 2. My turbotax On October 1, 2012, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. My turbotax This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. My turbotax The lease term was 6 months (ending on March 31, 2013), during which he used the property 45% in business. My turbotax He must include $71 in income in 2013. My turbotax The $71 is the sum of Amount A and Amount B. My turbotax Amount A is $71 ($15,000 × 45% × 2. My turbotax 1% × 183/365), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19 , prorated for the length of the lease. My turbotax Amount B is zero. My turbotax Where to report inclusion amount. My turbotax   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. My turbotax For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. My turbotax If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21. My turbotax Do the Passenger Automobile Limits Apply? The depreciation deduction, including the section 179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited. My turbotax This section describes the maximum depreciation deduction amounts for 2013 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit. My turbotax Exception for leased cars. My turbotax   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. My turbotax For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property , earlier, under What Is the Business-Use Requirement . My turbotax Maximum Depreciation Deduction The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. My turbotax They are based on the date you placed the automobile in service. My turbotax Passenger Automobiles The maximum deduction amounts for most passenger automobiles are shown in the following table. My turbotax Maximum Depreciation Deduction for Passenger Automobiles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,1601 $5,100 $3,050 $1,875 2012 11,1601 5,100 3,050 1,875 2011 11,0602 4,900 2,950 1,775 2010 11,0602  4,900 2,950 1,775 2009 10,9603 4,800 2,850 1,775 2008 10,9603  4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6104 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7105 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6606 4,900 2,950 1,775 1If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. My turbotax 2If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,060. My turbotax 3If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $2,960. My turbotax 4If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960. My turbotax 5If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. My turbotax If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. My turbotax 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060. My turbotax If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year. My turbotax If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. My turbotax The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12. My turbotax Example. My turbotax On April 15, 2013, Virginia Hart bought and placed in service a new car for $14,500. My turbotax She used the car only in her business. My turbotax She files her tax return based on the calendar year. My turbotax She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. My turbotax Under MACRS, a car is 5-year property. My turbotax Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. My turbotax Virginia multiplies the $14,500 unadjusted basis of her car by 0. My turbotax 20 to get her MACRS depreciation of $2,900 for 2013. My turbotax This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2013. My turbotax She can deduct the full $2,900. My turbotax Electric Vehicles The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. My turbotax The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. My turbotax Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts later for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans later, for electric vehicles classified as trucks and vans. My turbotax Maximum Depreciation Deduction For Electric Vehicles Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2006 $8,980 $14,400 $8,650 $5,225 2005 8,880 14,200 8,450 5,125 2004 31,8301 14,300 8,550 5,125 5/06/2003– 12/31/2003 32,0302 14,600 8,750 5,225 1/01/2003– 5/05/2003 22,8803 14,600 8,750 5,225 1If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880. My turbotax 2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. My turbotax If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. My turbotax 3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080. My turbotax Trucks and Vans The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. My turbotax The maximum deduction amounts for trucks and vans are shown in the following table. My turbotax Maximum Depreciation Deduction For Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 11,3601 5,300 3,150 1,875 2011 11,2602 5,200 3,150 1,875 2010 11,1603 5,100 3,050 1,875 2009 11,0604 4,900 2,950 1,775 2008 11,1605 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2006 3,260 5,200 3,150 1,875 2005 3,260 5,200 3,150 1,875 2004 10,9106 5,300 3,150 1,875 5/06/2003– 12/31/2003 11,0107 5,400 3,250 1,975 1/01/2003– 5/05/2003 7,9608 5,400 3,250 1,975 1 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,360. My turbotax 2 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,260. My turbotax 3 If you elected not to claim any special depreciation allowance or the vehicle is not qualified property, the maximum deduction is $3,160. My turbotax 4 If you elect not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,060. My turbotax 5If you elected not to claim any special depreciation allowance for the vehicle or the vehicle is not qualified property, the maximum deduction is $3,160. My turbotax 6If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, or the maximum deduction is $3,260. My turbotax 7 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. My turbotax If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. My turbotax 8 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360. My turbotax Depreciation Worksheet for Passenger Automobiles You can use the following worksheet to figure your depreciation deduction using the percentage tables. My turbotax Then use the information from this worksheet to prepare Form 4562. My turbotax Depreciation Worksheet for Passenger Automobiles   Part I   1. My turbotax MACRS system (GDS or ADS)     2. My turbotax Property class     3. My turbotax Date placed in service     4. My turbotax Recovery period     5. My turbotax Method and convention     6. My turbotax Depreciation rate (from tables)     7. My turbotax Maximum depreciation deduction for this year from the appropriate table       8. My turbotax Business/investment-use percentage       9. My turbotax Multiply line 7 by line 8. My turbotax This is your adjusted maximum depreciation deduction       10. My turbotax Section 179 deduction claimed this year (not more than line 9). My turbotax Enter -0- if this is not the year you placed the car in service. My turbotax         Note. My turbotax  1) If line 10 is equal to line 9, stop here. My turbotax Your combined section 179 and depreciation deduction (including your special depreciation allowance) is limited to the amount on line 9. My turbotax  2) If line 10 is less than line 9, complete Part II. My turbotax   Part II   11. My turbotax Subtract line 10 from line 9. My turbotax This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance )       12. My turbotax Cost or other basis (reduced by any alternative motor vehicle credit 1or credit for electric vehicles 2)       13. My turbotax Multiply line 12 by line 8. My turbotax This is your business/investment cost       14. My turbotax Section 179 deduction claimed in the year you placed the car in service       15. My turbotax Subtract line 14 from line 13. My turbotax This is your tentative basis for depreciation       16. My turbotax Multiply line 15 by . My turbotax 50 if the 50% special depreciation allowance applies. My turbotax This is your special depreciation allowance. My turbotax Enter -0- if this is not the year you placed the car in service, the car is not qualified property, or you elected not to claim a special depreciation allowance       Note 1) If line 16 is equal to line 11, stop here. My turbotax Your depreciation deduction (including your special depreciation allowance) is limited to the amount on line 11. My turbotax  2) If line 16 is less than line 11, complete Part III. My turbotax   Part III   17. My turbotax Subtract line 16 from 11. My turbotax This is the limit on the amount you can deduct for MACRS depreciation       18. My turbotax Subtract line 16 from line 15. My turbotax This is your basis for depreciation. My turbotax       19. My turbotax Multiply line 18 by line 6. My turbotax This is your tentative MACRS depreciation deduction. My turbotax       20. My turbotax Enter the lesser of line 17 or line 19. My turbotax This is your MACRS depreciation deduction. My turbotax     1 When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car. My turbotax 2 Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount. My turbotax             Deductions After the Recovery Period If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. My turbotax If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. My turbotax You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. My turbotax The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. My turbotax See Maximum Depreciation Deduction , earlier. My turbotax Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied. My turbotax You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. My turbotax There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period. My turbotax Example. My turbotax In May 2007, you bought and placed in service a car costing $31,500. My turbotax The car was 5-year property under GDS (MACRS). My turbotax You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. My turbotax You used the car exclusively for business during the recovery period (2007 through 2012). My turbotax You figured your depreciation as shown below. My turbotax Year Percentage Amount Limit   Allowed 2007 20. My turbotax 0% $6,300 $2,960   $2,960 2008 32. My turbotax 0 10,080 4,800   4,800 2009 19. My turbotax 2 6,048 2,850   2,850 2010 11. My turbotax 52 3,629 1,675   1,675 2011 11. My turbotax 52 3,629 1,675   1,675 2012 5. My turbotax 76 1,814 1,675   1,675 Total   $15,635 At the end of 2012, you had an unrecovered basis of $15,865 ($31,500 − $15,635). My turbotax If in 2013 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,675 or your remaining unrecovered basis. My turbotax If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. My turbotax However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. My turbotax For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,519 ($15,865 × 60%), but you still would have to reduce your basis by $15,865 to determine your unrecovered basis. My turbotax Deductions For Passenger Automobiles Acquired in a Trade-in If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. My turbotax Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. My turbotax This excess basis is the additional cash paid for the new automobile in the trade-in. My turbotax The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. My turbotax Special rules apply in determining the passenger automobile limits. My turbotax These rules and examples are discussed in section 1. My turbotax 168(i)-6(d)(3) of the regulations. My turbotax Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. My turbotax For more information, including how to make this election, see Election out under Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 and sections 1. My turbotax 168(i)-6(i) and 1. My turbotax 168(i)-6(j) of the regulations. My turbotax What Records Must Be Kept? You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. My turbotax For listed property, you must keep records for as long as any recapture can still occur. My turbotax Recapture can occur in any tax year of the recovery period. My turbotax Adequate Records To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. My turbotax You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. My turbotax However, your records should back up your receipts in an orderly manner. My turbotax Elements of expenditure or use. My turbotax   Your records or other documentary evidence must support all the following. My turbotax The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses. My turbotax The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year. My turbotax The date of the expenditure or use. My turbotax The business or investment purpose for the expenditure or use. My turbotax   Written documents of your expenditure or use are generally better evidence than oral statements alone. My turbotax You do not have to keep a daily log. My turbotax However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later. My turbotax Timeliness. My turbotax   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. My turbotax An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business: The statement is given by an employee to the employer, or The statement is given by an independent contractor to the client or customer. My turbotax   For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use. My turbotax Business purpose supported. My turbotax   Generally, an adequate record of business purpose must be in the form of a written statement. My turbotax However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. My turbotax A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. My turbotax For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel. My turbotax Business use supported. My turbotax   An adequate record contains enough information on each element of every business or investment use. My turbotax The amount of detail required to support the use depends on the facts and circumstances. My turbotax For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips. My turbotax   Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program. My turbotax Separate or combined expenditures or uses. My turbotax   Each use by you normally is considered a separate use. My turbotax However, you can combine repeated uses as a single item. My turbotax   Record each expenditure as a separate item. My turbotax Do not combine it with other expenditures. My turbotax If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. My turbotax If you combine these expenses, you do not need to support the business purpose of each expense. My turbotax Instead, you can divide the expenses based on the total business use of the listed property. My turbotax   You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. My turbotax For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. My turbotax You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. My turbotax Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use. My turbotax Confidential information. My turbotax   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. My turbotax You must keep it elsewhere and make it available as support to the IRS director for your area on request. My turbotax Substantial compliance. My turbotax   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate. My turbotax   If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows. My turbotax By your own oral or written statement containing detailed information as to the element. My turbotax By other evidence sufficient to establish the element. My turbotax   If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. My turbotax If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence. My turbotax Sampling. My turbotax   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year. My turbotax Example 1. My turbotax Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. My turbotax She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. My turbotax There is no other business use of the automobile, but she and family members also use it for personal purposes. My turbotax She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. My turbotax Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. My turbotax If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. My turbotax Example 2. My turbotax Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. My turbotax Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. My turbotax The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence. My turbotax Example 3. My turbotax Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. My turbotax For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. My turbotax During these weeks, his business use of the automobile does not follow a consistent pattern. My turbotax During the fourth week of each month, he delivers all business orders taken during the previous month. My turbotax The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. My turbotax The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods. My turbotax Loss of records. My turbotax   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use. My turbotax How Is Listed Property Information Reported? You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions. My turbotax Any deduction for a vehicle. My turbotax A depreciation deduction for any other listed property. My turbotax If you claim any deduction for a vehicle, you also must provide the information requested in Section B. My turbotax If you provide the vehicle for your employee's use, the employee must give you this information. My turbotax If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle. My turbotax Vehicles used by your employees. My turbotax   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements. My turbotax You maintain a written policy statement that prohibits one of the following uses of the vehicles. My turbotax All personal use including commuting. My turbotax Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners. My turbotax You treat all use of the vehicles by your employees as personal use. My turbotax You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees. My turbotax For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions. My turbotax Exceptions. My turbotax   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. My turbotax Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562. My turbotax Prev  Up  Next   Home   More Online Publications
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My turbotax 3. My turbotax   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. My turbotax Taxpayer identification numbers for aliens. My turbotax Taxpayer identification numbers for adoptees. My turbotax What's New Exemption amount. My turbotax  The amount you can deduct for each exemption has increased. My turbotax It was $3,800 for 2012. My turbotax It is $3,900 for 2013. My turbotax Exemption phaseout. My turbotax  You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount. My turbotax 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). My turbotax See Phaseout of Exemptions , later. My turbotax Introduction This chapter discusses the following topics. My turbotax Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse. My turbotax Exemptions for dependents — You generally can take an exemption for each of your dependents. My turbotax A dependent is your qualifying child or qualifying relative. My turbotax 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. My turbotax Phaseout of exemptions — Your deduction is reduced if your adjusted gross income is more than a certain amount. My turbotax Social security number (SSN) requirement for dependents — You must list the SSN of any dependent for whom you claim an exemption. My turbotax Deduction. My turbotax   Exemptions reduce your taxable income. My turbotax You can deduct $3,900 for each exemption you claim in 2013. My turbotax 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. My turbotax See Phaseout of Exemptions , later. My turbotax How to claim exemptions. My turbotax    How you claim an exemption on your tax return depends on which form you file. My turbotax    If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5. My turbotax    If you file Form 1040A, complete lines 6a through 6d. My turbotax The total number of exemptions you can claim is the total in the box on line 6d. My turbotax Also complete line 26. My turbotax   If you file Form 1040, complete lines 6a through 6d. My turbotax The total number of exemptions you can claim is the total in the box on line 6d. My turbotax Also complete line 42. My turbotax 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). My turbotax While each is worth the same amount ($3,900 for 2013), different rules apply to each type. My turbotax Personal Exemptions You are generally allowed one exemption for yourself. My turbotax If you are married, you may be allowed one exemption for your spouse. My turbotax These are called personal exemptions. My turbotax Your Own Exemption You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. My turbotax 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. My turbotax Your Spouse's Exemption Your spouse is never considered your dependent. My turbotax Joint return. My turbotax   On a joint return you can claim one exemption for yourself and one for your spouse. My turbotax Separate return. My turbotax   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. My turbotax This is true even if the other taxpayer does not actually claim your spouse as a dependent. My turbotax 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. My turbotax S. My turbotax tax purposes, must not be filing a return, and must not be the dependent of another taxpayer. My turbotax Death of spouse. My turbotax   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 . My turbotax 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 . My turbotax   If you remarried during the year, you cannot take an exemption for your deceased spouse. My turbotax   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. My turbotax If you file a joint return with your new spouse, you can be claimed as an exemption only on that return. My turbotax Divorced or separated spouse. My turbotax   If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse's exemption. My turbotax This rule applies even if you provided all of your former spouse's support. My turbotax Exemptions for Dependents You are allowed one exemption for each person you can claim as a dependent. My turbotax You can claim an exemption for a dependent even if your dependent files a return. My turbotax The term “dependent” means: A qualifying child, or A qualifying relative. My turbotax The terms “ qualifying child ” and “ qualifying relative ” are defined later. My turbotax You can claim an exemption for a qualifying child or qualifying relative only if these three tests are met. My turbotax Dependent taxpayer test. My turbotax Joint return test. My turbotax Citizen or resident test. My turbotax These three tests are explained in detail later. My turbotax All the requirements for claiming an exemption for a dependent are summarized in Table 3-1. My turbotax Table 3-1. My turbotax Overview of the Rules for Claiming an Exemption for a Dependent Caution. My turbotax This table is only an overview of the rules. My turbotax For details, see the rest of this chapter. My turbotax You cannot claim any dependents if you (or your spouse, if filing jointly) could be claimed as a dependent by another taxpayer. My turbotax   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. My turbotax   You cannot claim a person as a dependent unless that person is a U. My turbotax S. My turbotax citizen, U. My turbotax S. My turbotax resident alien, U. My turbotax S. My turbotax national, or a resident of Canada or Mexico. My turbotax 1  You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative. My turbotax   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. My turbotax   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. My turbotax   The child must have lived with you for more than half of the year. My turbotax 2  The child must not have provided more than half of his or her own support for the year. My turbotax   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). My turbotax  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. My turbotax 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. My turbotax   The person cannot be your qualifying child or the qualifying child of any other taxpayer. My turbotax   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). My turbotax   The person's gross income for the year must be less than $3,900. My turbotax 3  You must provide more than half of the person's total support for the year. My turbotax 4  1There is an exception for certain adopted children. My turbotax 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. My turbotax 3There is an exception if the person is disabled and has income from a sheltered workshop. My turbotax 4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped children. My turbotax Dependent not allowed a personal exemption. My turbotax 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. My turbotax This is true even if you do not claim the dependent's exemption on your return. My turbotax 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. My turbotax Housekeepers, maids, or servants. My turbotax   If these people work for you, you cannot claim exemptions for them. My turbotax Child tax credit. My turbotax   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. My turbotax For more information, see chapter 34. My turbotax Dependent Taxpayer Test If you can be claimed as a dependent by another person, you cannot claim anyone else as a dependent. My turbotax Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent. My turbotax 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. My turbotax Joint Return Test You generally cannot claim a married person as a dependent if he or she files a joint return. My turbotax Exception. My turbotax   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. My turbotax Example 1—child files joint return. My turbotax You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. My turbotax He earned $25,000 for the year. My turbotax The couple files a joint return. My turbotax You cannot take an exemption for your daughter. My turbotax Example 2—child files joint return only as claim for refund of withheld tax. My turbotax Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. My turbotax Neither is required to file a tax return. My turbotax They do not have a child. My turbotax Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. My turbotax 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. My turbotax You can claim exemptions for each of them if all the other tests to do so are met. My turbotax Example 3—child files joint return to claim American opportunity credit. My turbotax The facts are the same as in Example 2 except no taxes were taken out of your son's pay. My turbotax He and his wife are not required to file a tax return. My turbotax However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. My turbotax 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. My turbotax The exception to the joint return test does not apply, so you cannot claim an exemption for either of them. My turbotax Citizen or Resident Test You cannot claim a person as a dependent unless that person is a U. My turbotax S. My turbotax citizen, U. My turbotax S. My turbotax resident alien, U. My turbotax S. My turbotax national, or a resident of Canada or Mexico. My turbotax However, there is an exception for certain adopted children, as explained next. My turbotax Exception for adopted child. My turbotax   If you are a U. My turbotax S. My turbotax citizen or U. My turbotax S. My turbotax national who has legally adopted a child who is not a U. My turbotax S. My turbotax citizen, U. My turbotax S. My turbotax resident alien, or U. My turbotax S. My turbotax national, this test is met if the child lived with you as a member of your household all year. My turbotax This exception also applies if the child was lawfully placed with you for legal adoption. My turbotax Child's place of residence. My turbotax   Children usually are citizens or residents of the country of their parents. My turbotax   If you were a U. My turbotax S. My turbotax citizen when your child was born, the child may be a U. My turbotax S. My turbotax citizen and meet this test even if the other parent was a nonresident alien and the child was born in a foreign country. My turbotax Foreign students' place of residence. My turbotax   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. My turbotax S. My turbotax residents and do not meet this test. My turbotax You cannot claim an exemption for them. My turbotax However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. My turbotax See Expenses Paid for Student Living With You in chapter 24. My turbotax U. My turbotax S. My turbotax national. My turbotax   A U. My turbotax S. My turbotax national is an individual who, although not a U. My turbotax S. My turbotax citizen, owes his or her allegiance to the United States. My turbotax U. My turbotax S. My turbotax nationals include American Samoans and Northern Mariana Islanders who chose to become U. My turbotax S. My turbotax nationals instead of U. My turbotax S. My turbotax citizens. My turbotax Qualifying Child Five tests must be met for a child to be your qualifying child. My turbotax The five tests are: Relationship, Age, Residency, Support, and Joint return. My turbotax These tests are explained next. My turbotax 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. My turbotax See Special Rule for Qualifying Child of More Than One Person, later. My turbotax 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. My turbotax Adopted child. My turbotax   An adopted child is always treated as your own child. My turbotax The term “adopted child” includes a child who was lawfully placed with you for legal adoption. My turbotax Foster child. My turbotax   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. My turbotax 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. My turbotax Example. My turbotax Your son turned 19 on December 10. My turbotax 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. My turbotax Child must be younger than you or spouse. My turbotax   To be your qualifying child, a child who is not permanently and totally disabled must be younger than you. My turbotax 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. My turbotax Example 1—child not younger than you or spouse. My turbotax Your 23-year-old brother, who is a student and unmarried, lives with you and your spouse. My turbotax He is not disabled. My turbotax Both you and your spouse are 21 years old, and you file a joint return. My turbotax Your brother is not your qualifying child because he is not younger than you or your spouse. My turbotax Example 2—child younger than your spouse but not younger than you. My turbotax The facts are the same as in Example 1 except your spouse is 25 years old. My turbotax 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. My turbotax Student defined. My turbotax   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. My turbotax The 5 calendar months do not have to be consecutive. My turbotax Full-time student. My turbotax   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. My turbotax School defined. My turbotax   A school can be an elementary school, junior or senior high school, college, university, or technical, trade, or mechanical school. My turbotax However, an on-the-job training course, correspondence school, or school offering courses only through the Internet does not count as a school. My turbotax Vocational high school students. My turbotax   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. My turbotax Permanently and totally disabled. My turbotax   Your child is permanently and totally disabled if both of the following apply. My turbotax He or she cannot engage in any substantial gainful activity because of a physical or mental condition. My turbotax A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death. My turbotax Residency Test To meet this test, your child must have lived with you for more than half the year. My turbotax There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents. My turbotax Temporary absences. My turbotax   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. My turbotax 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. My turbotax Death or birth of child. My turbotax   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. My turbotax Child born alive. My turbotax   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. My turbotax State or local law must treat the child as having been born alive. My turbotax There must be proof of a live birth shown by an official document, such as a birth certificate. My turbotax 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. My turbotax Stillborn child. My turbotax   You cannot claim an exemption for a stillborn child. My turbotax Kidnapped child. My turbotax   You may be able to treat your child as meeting the residency test even if the child has been kidnapped. My turbotax See Publication 501 for details. My turbotax Children of divorced or separated parents (or parents who live apart). My turbotax   In most cases, because of the residency test, a child of divorced or separated parents is the qualifying child of the custodial parent. My turbotax However, the child will be treated as the qualifying child of the noncustodial parent if all four of the following statements are true. My turbotax 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. My turbotax The child received over half of his or her support for the year from the parents. My turbotax The child is in the custody of one or both parents for more than half of the year. My turbotax Either of the following statements is true. My turbotax 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. My turbotax (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. My turbotax If the decree or agreement went into effect after 2008, see Post-2008 divorce decree or separation agreement , later. My turbotax ) 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. My turbotax Custodial parent and noncustodial parent. My turbotax   The custodial parent is the parent with whom the child lived for the greater number of nights during the year. My turbotax The other parent is the noncustodial parent. My turbotax   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. My turbotax   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). My turbotax Equal number of nights. My turbotax   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). My turbotax December 31. My turbotax   The night of December 31 is treated as part of the year in which it begins. My turbotax For example, December 31, 2013, is treated as part of 2013. My turbotax Emancipated child. My turbotax   If a child is emancipated under state law, the child is treated as not living with either parent. My turbotax See Examples 5 and 6. My turbotax Absences. My turbotax   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. My turbotax 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. My turbotax Parent works at night. My turbotax   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. My turbotax On a school day, the child is treated as living at the primary residence registered with the school. My turbotax Example 1—child lived with one parent for a greater number of nights. My turbotax You and your child’s other parent are divorced. My turbotax In 2013, your child lived with you 210 nights and with the other parent 155 nights. My turbotax You are the custodial parent. My turbotax Example 2—child is away at camp. My turbotax In 2013, your daughter lives with each parent for alternate weeks. My turbotax In the summer, she spends 6 weeks at summer camp. My turbotax 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. My turbotax Example 3—child lived same number of nights with each parent. My turbotax Your son lived with you 180 nights during the year and lived the same number of nights with his other parent, your ex-spouse. My turbotax Your AGI is $40,000. My turbotax Your ex-spouse's AGI is $25,000. My turbotax You are treated as your son's custodial parent because you have the higher AGI. My turbotax Example 4—child is at parent’s home but with other parent. My turbotax Your son normally lives with you during the week and with his other parent, your ex-spouse, every other weekend. My turbotax You become ill and are hospitalized. My turbotax The other parent lives in your home with your son for 10 consecutive days while you are in the hospital. My turbotax Your son is treated as living with you during this 10-day period because he was living in your home. My turbotax Example 5—child emancipated in May. My turbotax When your son turned age 18 in May 2013, he became emancipated under the law of the state where he lives. My turbotax As a result, he is not considered in the custody of his parents for more than half of the year. My turbotax The special rule for children of divorced or separated parents does not apply. My turbotax Example 6—child emancipated in August. My turbotax 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. My turbotax She turns 18 and is emancipated under state law on August 1, 2013. My turbotax 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. My turbotax You are the custodial parent. My turbotax Written declaration. My turbotax    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. My turbotax The noncustodial parent must attach a copy of the form or statement to his or her tax return. My turbotax   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. My turbotax Post-1984 and pre-2009 divorce decree or separation agreement. My turbotax   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. My turbotax The decree or agreement must state all three of the following. My turbotax The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support. My turbotax The custodial parent will not claim the child as a dependent for the year. My turbotax The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent. My turbotax   The noncustodial parent must attach all of the following pages of the decree or agreement to his or her tax return. My turbotax The cover page (write the other parent's social security number on this page). My turbotax The pages that include all of the information identified in items (1) through (3) above. My turbotax The signature page with the other parent's signature and the date of the agreement. My turbotax Post-2008 divorce decree or separation agreement. My turbotax   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. My turbotax 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. My turbotax The form or statement must release the custodial parent's claim to the child without any conditions. My turbotax For example, the release must not depend on the noncustodial parent paying support. My turbotax    The noncustodial parent must attach the required information even if it was filed with a return in an earlier year. My turbotax Revocation of release of claim to an exemption. My turbotax   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). My turbotax 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. My turbotax 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. My turbotax Remarried parent. My turbotax   If you remarry, the support provided by your new spouse is treated as provided by you. My turbotax Parents who never married. My turbotax   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. My turbotax 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. My turbotax This test is different from the support test to be a qualifying relative, which is described later. My turbotax However, to see what is or is not support, see Support Test (To Be a Qualifying Relative) , later. My turbotax 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. My turbotax Worksheet 3-1. My turbotax Worksheet for Determining Support Funds Belonging to the Person You Supported       1. My turbotax 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. My turbotax Do not include funds provided by the state; include those amounts on line 23 instead 1. My turbotax     2. My turbotax Enter the amount on line 1 that was used for the person's support 2. My turbotax     3. My turbotax Enter the amount on line 1 that was used for other purposes 3. My turbotax     4. My turbotax Enter the total amount in the person's savings and other accounts at the end of the year 4. My turbotax     5. My turbotax Add lines 2 through 4. My turbotax (This amount should equal line 1. My turbotax ) 5. My turbotax     Expenses for Entire Household (where the person you supported lived)       6. My turbotax Lodging (complete line 6a or 6b):         a. My turbotax Enter the total rent paid 6a. My turbotax       b. My turbotax Enter the fair rental value of the home. My turbotax If the person you supported owned the home,  also include this amount in line 21 6b. My turbotax     7. My turbotax Enter the total food expenses 7. My turbotax     8. My turbotax Enter the total amount of utilities (heat, light, water, etc. My turbotax not included in line 6a or 6b) 8. My turbotax     9. My turbotax Enter the total amount of repairs (not included in line 6a or 6b) 9. My turbotax     10. My turbotax Enter the total of other expenses. My turbotax Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance 10. My turbotax     11. My turbotax Add lines 6a through 10. My turbotax These are the total household expenses 11. My turbotax     12. My turbotax Enter total number of persons who lived in the household 12. My turbotax     Expenses for the Person You Supported       13. My turbotax Divide line 11 by line 12. My turbotax This is the person's share of the household expenses 13. My turbotax     14. My turbotax Enter the person's total clothing expenses 14. My turbotax     15. My turbotax Enter the person's total education expenses 15. My turbotax     16. My turbotax Enter the person's total medical and dental expenses not paid for or reimbursed by insurance 16. My turbotax     17. My turbotax Enter the person's total travel and recreation expenses 17. My turbotax     18. My turbotax Enter the total of the person's other expenses 18. My turbotax     19. My turbotax Add lines 13 through 18. My turbotax This is the total cost of the person's support for the year 19. My turbotax     Did the Person Provide More Than Half of His or Her Own Support?       20. My turbotax Multiply line 19 by 50% (. My turbotax 50) 20. My turbotax     21. My turbotax Enter the amount from line 2, plus the amount from line 6b if the person you supported owned  the home. My turbotax This is the amount the person provided for his or her own support 21. My turbotax     22. My turbotax Is line 21 more than line 20?   No. My turbotax You meet the support test for this person to be your qualifying child. My turbotax If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. My turbotax Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. My turbotax    Yes. My turbotax You do not meet the support test for this person to be either your qualifying child or your qualifying relative. My turbotax Stop here. My turbotax        Did You Provide More Than Half?       23. My turbotax Enter the amount others provided for the person's support. My turbotax Include amounts provided by state, local, and other welfare societies or agencies. My turbotax Do not include any amounts included on line 1 23. My turbotax     24. My turbotax Add lines 21 and 23 24. My turbotax     25. My turbotax Subtract line 24 from line 19. My turbotax This is the amount you provided for the person's support 25. My turbotax     26. My turbotax Is line 25 more than line 20?   Yes. My turbotax You meet the support test for this person to be your qualifying relative. My turbotax    No. My turbotax You do not meet the support test for this person to be your qualifying relative. My turbotax 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. My turbotax 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. My turbotax   Example. My turbotax You provided $4,000 toward your 16-year-old son's support for the year. My turbotax He has a part-time job and provided $6,000 to his own support. My turbotax He provided more than half of his own support for the year. My turbotax He is not your qualifying child. My turbotax Foster care payments and expenses. My turbotax   Payments you receive for the support of a foster child from a child placement agency are considered support provided by the agency. My turbotax 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. My turbotax   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. My turbotax For more information about the deduction for charitable contributions, see chapter 24. My turbotax If your unreimbursed expenses are not deductible as charitable contributions, they may qualify as support you provided. My turbotax   If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you. My turbotax Example 1. My turbotax Lauren, a foster child, lived with Mr. My turbotax and Mrs. My turbotax Smith for the last 3 months of the year. My turbotax The Smiths cared for Lauren because they wanted to adopt her (although she had not been placed with them for adoption). My turbotax They did not care for her as a trade or business or to benefit the agency that placed her in their home. My turbotax The Smiths' unreimbursed expenses are not deductible as charitable contributions but are considered support they provided for Lauren. My turbotax Example 2. My turbotax You provided $3,000 toward your 10-year-old foster child's support for the year. My turbotax The state government provided $4,000, which is considered support provided by the state, not by the child. My turbotax See Support provided by the state (welfare, food stamps, housing, etc. My turbotax ) , later. My turbotax Your foster child did not provide more than half of her own support for the year. My turbotax Scholarships. My turbotax   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. My turbotax Joint Return Test (To Be a Qualifying Child) To meet this test, the child cannot file a joint return for the year. My turbotax Exception. My turbotax   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. My turbotax Example 1—child files joint return. My turbotax You supported your 18-year-old daughter, and she lived with you all year while her husband was in the Armed Forces. My turbotax He earned $25,000 for the year. My turbotax The couple files a joint return. My turbotax Because your daughter and her husband file a joint return, she is not your qualifying child. My turbotax Example 2—child files joint return only as a claim for refund of withheld tax. My turbotax Your 18-year-old son and his 17-year-old wife had $800 of wages from part-time jobs and no other income. My turbotax Neither is required to file a tax return. My turbotax They do not have a child. My turbotax Taxes were taken out of their pay so they filed a joint return only to get a refund of the withheld taxes. My turbotax The exception to the joint return test applies, so your son may be your qualifying child if all the other tests are met. My turbotax Example 3—child files joint return to claim American opportunity credit. My turbotax The facts are the same as in Example 2 except no taxes were taken out of your son's pay. My turbotax He and his wife were not required to file a tax return. My turbotax However, they file a joint return to claim an American opportunity credit of $124 and get a refund of that amount. My turbotax 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. My turbotax The exception to the joint return test does not apply, so your son is not your qualifying child. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax Sometimes, a child meets the relationship, age, residency, support, and joint return tests to be a qualifying child of more than one person. My turbotax 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). My turbotax The exemption for the child. My turbotax The child tax credit. My turbotax Head of household filing status. My turbotax The credit for child and dependent care expenses. My turbotax The exclusion from income for dependent care benefits. My turbotax The earned income credit. My turbotax The other person cannot take any of these benefits based on this qualifying child. My turbotax In other words, you and the other person cannot agree to divide these benefits between you. My turbotax The other person cannot take any of these tax benefits for a child unless he or she has a different qualifying child. My turbotax Tiebreaker rules. My turbotax   To determine which person can treat the child as a qualifying child to claim these six tax benefits, the following tiebreaker rules apply. My turbotax If only one of the persons is the child's parent, the child is treated as the qualifying child of the parent. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax See Example 6 . My turbotax   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. My turbotax Example 1—child lived with parent and grandparent. My turbotax You and your 3-year-old daughter Jane lived with your mother all year. My turbotax You are 25 years old, unmarried, and your AGI is $9,000. My turbotax Your mother's AGI is $15,000. My turbotax Jane's father did not live with you or your daughter. My turbotax You have not signed Form 8332 (or a similar statement) to release the child's exemption to the noncustodial parent. My turbotax 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. My turbotax However, only one of you can claim her. My turbotax Jane is not a qualifying child of anyone else, including her father. My turbotax You agree to let your mother claim Jane. My turbotax 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). My turbotax Example 2—parent has higher AGI than grandparent. My turbotax The facts are the same as in Example 1 except your AGI is $18,000. My turbotax Because your mother's AGI is not higher than yours, she cannot claim Jane. My turbotax Only you can claim Jane. My turbotax Example 3—two persons claim same child. My turbotax The facts are the same as in Example 1 except that you and your mother both claim Jane as a qualifying child. My turbotax In this case, you, as the child's parent, will be the only one allowed to claim Jane as a qualifying child. My turbotax The IRS will disallow your mother's claim to the six tax benefits listed earlier unless she has another qualifying child. My turbotax Example 4—qualifying children split between two persons. My turbotax 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. My turbotax Only one of you can claim each child. My turbotax However, if your mother's AGI is higher than yours, you can allow your mother to claim one or more of the children. My turbotax For example, if you claim one child, your mother can claim the other two. My turbotax Example 5—taxpayer who is a qualifying child. My turbotax 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. My turbotax This means you are your mother's qualifying child. My turbotax 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. My turbotax Example 6—child lived with both parents and grandparent. My turbotax The facts are the same as in Example 1 except you are married to your daughter's father. My turbotax The two of you live together with your daughter and your mother, and have an AGI of $20,000 on a joint return. My turbotax If you and your husband do not claim your daughter as a qualifying child, your mother can claim her instead. My turbotax 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. My turbotax Example 7—separated parents. My turbotax You, your husband, and your 10-year-old son lived together until August 1, 2013, when your husband moved out of the household. My turbotax In August and September, your son lived with you. My turbotax For the rest of the year, your son lived with your husband, the boy's father. My turbotax 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. My turbotax 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. My turbotax You and your husband will file separate returns. My turbotax Your husband agrees to let you treat your son as a qualifying child. My turbotax 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). My turbotax 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. My turbotax 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. My turbotax Example 8—separated parents claim same child. My turbotax The facts are the same as in Example 7 except that you and your husband both claim your son as a qualifying child. My turbotax In this case, only your husband will be allowed to treat your son as a qualifying child. My turbotax This is because, during 2013, the boy lived with him longer than with you. My turbotax If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. My turbotax If you do not have another qualifying child or dependent, the IRS will also disallow your claim to the exclusion for dependent care benefits. My turbotax 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. My turbotax 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. My turbotax Example 9—unmarried parents. My turbotax You, your 5-year-old son, and your son's father lived together all year. My turbotax You and your son's father are not married. My turbotax 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. My turbotax Your AGI is $12,000 and your son's father's AGI is $14,000. My turbotax Your son's father agrees to let you claim the child as a qualifying child. My turbotax 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). My turbotax Example 10—unmarried parents claim same child. My turbotax 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. My turbotax In this case, only your son's father will be allowed to treat your son as a qualifying child. My turbotax This is because his AGI, $14,000, is more than your AGI, $12,000. My turbotax If you claimed an exemption or the child tax credit for your son, the IRS will disallow your claim to both these tax benefits. My turbotax 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. My turbotax Example 11—child did not live with a parent. My turbotax You and your 7-year-old niece, your sister's child, lived with your mother all year. My turbotax You are 25 years old, and your AGI is $9,300. My turbotax Your mother's AGI is $15,000. My turbotax Your niece's parents file jointly, have an AGI of less than $9,000, and do not live with you or their child. My turbotax 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. My turbotax However, only your mother can treat her as a qualifying child. My turbotax This is because your mother's AGI, $15,000, is more than your AGI, $9,300. My turbotax Applying this special rule to divorced or separated parents (or parents who live apart). My turbotax   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. My turbotax 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. My turbotax 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. My turbotax Example 1. My turbotax You and your 5-year-old son lived all year with your mother, who paid the entire cost of keeping up the home. My turbotax Your AGI is $10,000. My turbotax Your mother's AGI is $25,000. My turbotax Your son's father did not live with you or your son. My turbotax 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. My turbotax Because of this, you cannot claim an exemption or the child tax credit for your son. My turbotax 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. My turbotax 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. My turbotax 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. My turbotax (Note: The support test does not apply for the earned income credit. My turbotax ) However, you agree to let your mother claim your son. My turbotax 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. My turbotax (You cannot claim head of household filing status because your mother paid the entire cost of keeping up the home. My turbotax ) Example 2. My turbotax The facts are the same as in Example 1 except your AGI is $25,000 and your mother's AGI is $21,000. My turbotax Your mother cannot claim your son as a qualifying child for any purpose because her AGI is not higher than yours. My turbotax Example 3. My turbotax 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. My turbotax Your mother also claims him as a qualifying child for head of household filing status. My turbotax 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. My turbotax 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. My turbotax Qualifying Relative Four tests must be met for a person to be your qualifying relative. My turbotax The four tests are: Not a qualifying child test, Member of household or relationship test, Gross income test, and Support test. My turbotax Age. My turbotax   Unlike a qualifying child, a qualifying relative can be any age. My turbotax There is no age test for a qualifying relative. My turbotax Kidnapped child. My turbotax   You may be able to treat a child as your qualifying relative even if the child has been kidnapped. My turbotax See Publication 501 for details. My turbotax 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. My turbotax Example 1. My turbotax Your 22-year-old daughter, who is a student, lives with you and meets all the tests to be your qualifying child. My turbotax She is not your qualifying relative. My turbotax Example 2. My turbotax Your 2-year-old son lives with your parents and meets all the tests to be their qualifying child. My turbotax He is not your qualifying relative. My turbotax Example 3. My turbotax Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. My turbotax He may be your qualifying relative if the gross income test and the support test are met. My turbotax Example 4. My turbotax 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. My turbotax He is not your qualifying child because he does not meet the residency test. My turbotax He may be your qualifying relative if the gross income test and the support test are met. My turbotax Child of person not required to file a return. My turbotax   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. My turbotax Example 1—return not required. My turbotax You support an unrelated friend and her 3-year-old child, who lived with you all year in your home. My turbotax Your friend has no gross income, is not required to file a 2013 tax return, and does not file a 2013 tax return. My turbotax Both your friend and her child are your qualifying relatives if the support test is met. My turbotax Example 2—return filed to claim refund. My turbotax 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. My turbotax 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. My turbotax Both your friend and her child are your qualifying relatives if the support test is met. My turbotax Example 3—earned income credit claimed. My turbotax 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. My turbotax 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. My turbotax Child in Canada or Mexico. My turbotax   You may be able to claim your child as a dependent even if the child lives in Canada or Mexico. My turbotax If the child does not live with you, the child does not meet the residency test to be your qualifying child. My turbotax However, the child may still be your qualifying relative. My turbotax If the persons the child does live with are not U. My turbotax S. My turbotax citizens and have no U. My turbotax S. My turbotax gross income, those persons are not “taxpayers,” so the child is not the qualifying child of any other taxpayer. My turbotax 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. My turbotax   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. My turbotax S. My turbotax citizen, U. My turbotax S. My turbotax resident alien, or U. My turbotax S. My turbotax national. My turbotax There is an exception for certain adopted children who lived with you all year. My turbotax See Citizen or Resident Test , earlier. My turbotax Example. My turbotax You provide all the support of your children, ages 6, 8, and 12, who live in Mexico with your mother and have no income. My turbotax You are single and live in the United States. My turbotax Your mother is not a U. My turbotax S. My turbotax citizen and has no U. My turbotax S. My turbotax income, so she is not a “taxpayer. My turbotax ” Your children are not your qualifying children because they do not meet the residency test. My turbotax But since they are not the qualifying children of any other taxpayer, they are your qualifying relatives and you can claim them as dependents. My turbotax You may also be able to claim your mother as a dependent if the gross income and support tests are met. My turbotax 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 . My turbotax If at any time during the year the person was your spouse, that person cannot be your qualifying relative. My turbotax However, see Personal Exemptions , earlier. My turbotax Relatives who do not have to live with you. My turbotax   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. My turbotax Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). My turbotax (A legally adopted child is considered your child. My turbotax ) Your brother, sister, half brother, half sister, stepbrother, or stepsister. My turbotax Your father, mother, grandparent, or other direct ancestor, but not foster parent. My turbotax Your stepfather or stepmother. My turbotax A son or daughter of your brother or sister. My turbotax A son or daughter of your half brother or half sister. My turbotax A brother or sister of your father or mother. My turbotax Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. My turbotax Any of these relationships that were established by marriage are not ended by death or divorce. My turbotax Example. My turbotax You and your wife began supporting your wife's father, a widower, in 2006. My turbotax Your wife died in 2012. My turbotax Despite your wife's death, your father-in-law continues to meet this test, even if he does not live with you. My turbotax You can claim him as a dependent if all other tests are met, including the gross income test and support test. My turbotax Foster child. My turbotax   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. My turbotax Joint return. My turbotax   If you file a joint return, the person can be related to either you or your spouse. My turbotax Also, the person does not need to be related to the spouse who provides support. My turbotax   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. My turbotax 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. My turbotax Temporary absences. My turbotax   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. My turbotax   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. My turbotax Death or birth. My turbotax   A person who died during the year, but lived with you as a member of your household until death, will meet this test. My turbotax 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. My turbotax 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. My turbotax   If your dependent died during the year and you otherwise qualify to claim an exemption for the dependent, you can still claim the exemption. My turbotax Example. My turbotax Your dependent mother died on January 15. My turbotax She met the tests to be your qualifying relative. My turbotax The other tests to claim an exemption for a dependent were also met. My turbotax You can claim an exemption for her on your return. My turbotax Local law violated. My turbotax   A person does not meet this test if at any time during the year the relationship between you and that person violates local law. My turbotax Example. My turbotax Your girlfriend lived with you as a member of your household all year. My turbotax However, your relationship with her violated the laws of the state where you live, because she was married to someone else. My turbotax Therefore, she does not meet this test and you cannot claim her as a dependent. My turbotax Adopted child. My turbotax   An adopted child is always treated as your own child. My turbotax The term “adopted child” includes a child who was lawfully placed with you for legal adoption. My turbotax Cousin. My turbotax   Your cousin meets this test only if he or she lives with you all year as a member of your household. My turbotax A cousin is a descendant of a brother or sister of your father or mother. My turbotax Gross Income Test To meet this test, a person's gross income for the year must be less than $3,900. My turbotax Gross income defined. My turbotax   Gross income is all income in the form of money, property, and services that is not exempt from tax. My turbotax   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. My turbotax   Gross receipts from rental property are gross income. My turbotax Do not deduct taxes, repairs, or other expenses, to determine the gross income from rental property. My turbotax   Gross income includes a partner's share of the gross (not a share of the net) partnership income. My turbotax    Gross income also includes all taxable unemployment compensation and certain scholarship and fellowship grants. My turbotax 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. My turbotax For more information about scholarships, see chapter 12. My turbotax   Tax-exempt income, such as certain social security benefits, is not included in gross income. My turbotax Disabled dependent working at sheltered workshop. My turbotax   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. My turbotax The availability of medical care at the workshop must be the main reason for the individual's presence there. My turbotax Also, the income must come solely from activities at the workshop that are incident to this medical care. My turbotax   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. My turbotax S. My turbotax possession, a political subdivision of a state or possession, the United States, or the District of Columbia. My turbotax “Permanently and totally disabled” has the same meaning here as under Qualifying Child, earlier. My turbotax 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. My turbotax 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. My turbotax How to determine if support test is met. My turbotax   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. My turbotax This includes support the person provided from his or her own funds. My turbotax   You may find Worksheet 3-1 helpful in figuring whether you provided more than half of a person's support. My turbotax Person's own funds not used for support. My turbotax   A person's own funds are not support unless they are actually spent for support. My turbotax Example. My turbotax Your mother received $2,400 in social security benefits and $300 in interest. My turbotax She paid $2,000 for lodging and $400 for recreation. My turbotax She put $300 in a savings account. My turbotax 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. My turbotax 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. My turbotax Child's wages used for own support. My turbotax   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. My turbotax Year support is provided. My turbotax   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. My turbotax   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. My turbotax Armed Forces dependency allotments. My turbotax   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. My turbotax If your allotment is used to support persons other than those you name, you can take the exemptions for them if they otherwise qualify. My turbotax Example. My turbotax You are in the Armed Forces. My turbotax You authorize an allotment for your widowed mother that she uses to support herself and her sister. My turbotax 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. My turbotax Tax-exempt military quarters allowances. My turbotax   These allowances are treated the same way as dependency allotments in figuring support. My turbotax The allotment of pay and the tax-exempt basic allowance for quarters are both considered as provided by you for support. My turbotax Tax-exempt income. My turbotax   In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. My turbotax Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest. My turbotax Example 1. My turbotax You provide $4,000 toward your mother's support during the year. My turbotax She has earned income of $600, nontaxable social security benefits of $4,800, and tax-exempt interest of $200. My turbotax She uses all these for her support. My turbotax 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). My turbotax Example 2. My turbotax Your niece takes out a student loan of $2,500 a