If you've been supporting your mother-in-law all year, you might wonder if there's anything in it come tax time. There may be, if your mother-in-law meets the IRS's relationship test for a dependent. This doesn't automatically mean you can claim an exemption for her as a dependent, however. There are a few other qualifying factors.
If your father-in-law is still living, and if your mother-in-law files a joint married tax return with him, this disqualifies her as your dependent, and you can’t claim her. Your own filing status doesn't matter, however -- just as long as no one else can claim you as a dependent. For example, you and your spouse do not have to file a joint married return for you to claim an exemption for your mother-in-law.
The IRS does not require that your mother-in-law live with you to qualify as your dependent. For example, it doesn't matter whether you paid for your mother-in-law's care while she was living in your home, or if you paid for her care while she lived elsewhere.
Your mother-in-law cannot have received more taxable income than the amount of the personal exemption you're claiming for her, which is $3,800 for the 2012 tax year. If she received more than this, she's not a dependent. Social Security income usually doesn't count, because in most cases, it is tax-exempt. Even a modest amount of investment or retirement income, however, might put her over the limit.
Your mother-in-law must have depended on you to pay for more than half her living expenses and care during the tax year. For example, if she had $3,000 in income and $12,000 in Social Security benefits, and if her living expenses for the year were $20,000, you wouldn't be able to claim her as your dependent, because she contributed 75 percent of her own support.
Calculating Living Expenses
If your mother-in-law lived with you, the IRS bases her living costs on the fair rental value of your home, or what you could reasonably charge someone for living there. Your mother-in-law's portion of things like utilities and groceries count as well, and are calculated as a percentage of these costs based on the number of people in your household. For example, if only you, your spouse and your mother-in-law live in your home, her portion of these expenses is one-third.
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