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.
Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.