Can adult child not at home be a dependent?

[m2m]

Hello Tax Experts!

Adult daughter unemployed; earned 2K from freelance writing; no other income, no government aid of any kind.  Lives by herself in NYC co-op apartment owned by mother. Single mother provided total financial support including medical insurance, monthly co-op apartment maintenance fees, food and all.

Can mother claim daughter as a dependent?
 -  If yes, what is mother's filing status?
 -  If yes, can daughter's medical insurance and other medical expenses be deductions for mother's Schedule A?

Thank you kindly!

[mwcpa]

from IRS publication 501 (www.irs.gov/publications/p501/ar02.html#en_US_2012_publink1000220939)

you must meet these tests

Four tests must be met for a person to be your qualifying relative. The four tests are:

1. Not a qualifying child test,

2. Member of household or relationship test,

3. Gross income test, and

4. Support test.
   

Based on the limited facts...
Test 1.... the daughter is not a qualifying child
Test 2.... the daughter meets one of the exception to the household test... ("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....Your child")
Test 3.... the gross income is under the 3,800 limit
Test 4.... the support appears to be over 50%

Can mother claim daughter as a dependent? Yes
what is mother's filing status? single (the same pub 501, head of household is not proper.... "A qualifying person lived with you in the home for more than half the year ")
can daughter's medical insurance and other medical expenses be deductions for mother's Schedule A? (IRS publication 502 www.irs.gov/publications/p502/index.html  "You can include medical expenses you paid for your dependent. For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses."

Hope this helps.  Please read the IRS publications for more details, I have only provided general guidance here.

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[m2m]

mwcpa - Thank you so much for your help!  You are the best!! Daughter still needs to file a return in order to pay self-employment tax - correct? Same story last year; mother can do an amended return?

[mwcpa]

"Daughter still needs to file a return in order to pay self-employment tax - correct?"

Yes, she just cannot claim EIC or herself as a dependent

"Same story last year; mother can do an amended return"

And if dauughter "claimed" herself and claimed EIC she needs to amend hers too...actually, based on the fact daughter was more than likely precluded from claiming herself or claiming EIC.....Mom "could" claim her.... meaning daughter cannot claim herself....even if Mom did not....

don't you love Congress....

[rangerj]

Note: In addition to the above, if you are providing your daughter with "gifts", e.g. rent free living plus living expenses, and the fair market value of the gifts exceed the anual exclusion limit, then a gift tax return MAY be in order. A discussion with a tax professional may be in order. I am also one of MW's fan club.

[m2m]

Thanks rangerj! If indeed a gift tax return needs to be filed but is not filed?  What then? Penalties? IRS audit/notices? If gift amounts will not exceed the current estate tax exemption, would gift tax returns have any impact in the end?

[rangerj]

If the amount of gifts excede the annual exclusion then the tax code, as written by Congress, requires that a gift tax return be filed. The amount of gift in excess of the annual exclusion will be used to reduce the lifetime exclusion. There would be no tax due if the lifetime exclusion is not used up. Generally penalties and interest are based upon the amount of tax owed. There may be a penalty for not filing an information return, that is the gift tax return that has no tax due and owing, but indicates an amount of reportable gifts.