Dependency Exemption

Not a Qual. Child and not a Qual. Relative either. Full-time student exception for QC requires under age 24 at the end of the tax year, otherwise under age 19 or permanently & totally disabled.

As you state, gross income is too high to be a QR. If gross income dropped and parents provided over half of support, then QR could work.

It's been this way at least since Uniform Definition of a Child rules beginning tax year 2005.

The new reality though, is that many children drag out their college educations beyond the traditional four years, and even then expect to move back in with the parents when done if they don't have a full time job. Write your Congressperson for or against extending the eligibility requirements based on age! ;-)

-Mark Bole

Is the gross income for Schedule C income the schedule C profit, or line 1 of schedule C or profit less 1/2 SE tax or what?

For Social Security benefits gross income is only the taxable portion. So gross income isn't always gross income.

I always thought it was Line 7 on Schedule C, the one labeled "Gross Income".

But I see your point.

Gross rental income is just that -- gross rent before expenses.

Gross income from a sale is not the proceeds, but the gain (a loss does not affect gross income).

-Mark Bole

My take on Pub. 501 is that you can only subtract cost of goods sold from gross receipts--so, I'd use Line 5 (gross profit) of Part I of the Schedule C for the gross income test.

I don't have the citation or ruling but the definition of gross income for the dependency exemption is defined as taxable gross income. I.e., Line 22 of the 1040.

Interesting... and very different from the gross income definition for purposes of requirement to file.

It was just a few years ago that one of the tests for a QR, "not a QC of anyone else (subject to US income tax law)", was revised to be: "not a QC of another taxpayer", where the distinction was, a taxpayer was defined to be someone who was required to file, or who chose to file in order to receive a refundable credit.

So, in the classic textbook example of boyfriend (BF), girlfriend (GF), and GF's kid (K) all living together, where BF has full-time job and supports the household, and GF and K have no income, we have:

GF and K are both QR's of BF, and can be claimed as dependents.

Now, suppose GF inherits a rental property with zero net profit, but $20K gross rent receipts. Now she has a filing requirement, although she still has no taxable income.

GF is still a QR -> dependent, but K is no longer a QR of BF, since GF is now a taxpayer. No one gets the benefit of K's exemption (unless, of course, K is too old to meet the age test for a QC).

-Mark Bole

I'm going to need a citation for your definition of gross income for having to file includes gross rental receipts as I can not find anything in Section 6012 or its regulations that says that.

From what I can see, Sec 6102 primarily deals with rounding dollars and cents on tax forms.

I'm assuming it's the meaning of gross income you are after, not the fact that filing requirements are based on gross income or some other special situations. I haven't tried to look to see if the definition of gross income for filing requirements is somehow different from the general definition of gross income.

Below is what I am going by. Alan, I consider you one of the most reliable contributors to this newsgroup, so either we're talking about two different things, or maybe I need to go back to tax school 101!

----------------------- Pub 17:

"Generally, you must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use or occupation of property."

----------------------- "IRC Sec. 61. Gross income defined

(a) General definition Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; [...]"

[note: item (2) means, gross receipts minus cost of goods sold (Reg. Sec. 1.61-3) - but for the other items, it clearly does not say to deduct expenses first]

----------------------- Regulations Sec. 1.61-8 Rents and royalties

"(a) In general. Gross income includes rentals received or accrued for the occupancy of real estate or the use of personal property."

----------------------- Tax research service (Delphis) provided by National Association of Enrolled Agents (NAEA):

" The following list contains examples of how to determine gross income. [...] Rental Property If taxpayer has rental property, the gross income is gross receipts. Do not deduct expenses in computing the gross income."

----------------------- Wikipedia:

"Gross income is commonly defined as the amount of a company's or a person's income before all deductions or any taxpayer?s income, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. For a business, this amount is pre-tax net sales less cost of sales."

-----------------------

-Mark Bole

Oops, never mind. My mistake, you said 6012, not 6102. But that doesn't change my previous reply.

-Mark Bole

IIRC, nothing in the law was revised. The IRS just issued an interpretation of the law that existed all along, and so that interpretation was retroactive all the way back to the original 'uniform' definition of a child.

In light of the other sub-thread, now I'm the one who is saying, I would like to see a citation or ruling before buying into this.

IRC Sec. 151(c)(1)(A) - "whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than the exemption amount"

It doesn't say *taxable* gross income, just "gross income".

-Mark Bole

For the qualifying relative gross income test, nontaxable social security income is not part of gross income. I believe nontaxable portion of 1099-R income does not count for gross income test.

Right. IRC Sec. 86 specifically includes only the taxable portion of SS income in gross income, so I don't see any conflict there.

The 1099-R is just an artifact of how the distribution is reported, clearly the non-taxable amount is just your own previously-taxed money coming back to you, so it's not income of any kind.

-Mark Bole

The question is: are you looking at "Gross Income Test" in relationship to a qualifying relative--as referenced in my earlier post, starting point for me would be page 17 of Publication 501. This is a unique definition of gross income, applied only in the case of determining a qualifying relative. [and I do realize the code is the bottom line]

No, it's not a unique definition, it is the same definition used elsewhere in the tax code, and is consistent with all my posts in this thread.

This is the pub I was looking for earlier and couldn't find right away. It confirms that rental gross receipts are included in gross income, and that for purposes of the gross income test for a QR, one does *not* use Line 22 of the 1040 (the so-called "total income" line).

-Mark Bole

It's "gross income" as defined in Section 61 - so it's all income unless specifically excluded.

Any excluded income still has to be considered for purposes of the support test.

That's because line 22 is not "gross income" as defined by the IRC. It includes other things, such as expenses of the self-employed (which in the code is an adjustment to gross income to arrive at AGI - Section 62).

I surrender.