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TheStreet Open House

Changing Family Dynamic May Lead To Tax Relief

It comes down to the definition of dependent.

The Internal Revenue Service makes a distinction between a qualifying child and a qualifying relative.

To be a qualifying child, the person would have to be a child, stepchild, foster child or sibling, and under the age of 19, or 24 if in college, who has lived with you for at least half the year. The taxpayer would have to provide at least half the support.

A qualifying relative can be a child who doesn't meet the qualifying child requirement, a parent or stepparent, grandparent, niece or nephew, aunt or uncle or in-laws, according to the IRS. They do not necessarily have to live with you, but you do have to provide at least half the support for that person. And that person's income cannot exceed the personal exemption â¿¿ $3,800 in 2012.

"Unlike a qualifying child, a qualifying relative can be any age," the IRS says in its Publication 17.

Taxpayers can take an exemption of $3,800 for each qualified child or relative who is a dependent.

Here are some examples from the IRS:

"Your mother received $2,400 in Social Security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation." If you spend more than $2,400 to support her, supplementing what she spends, and her annual income is less than $3,800, you can claim her as a dependent and take the full value of the exemption.

"Your brother's daughter takes out a student loan of $2,500 and uses it to pay her college tuition. She is personally responsible for the loan. You provide $2,000 toward her total support. You cannot claim an exemption for her because you provide less than half of her support."

Usually the items that go into determining support are the cost of housing, food, clothing and medical costs, including doctor bills and medicine

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