Publication 501: Exemptions, Standard Deduction, and Filing Information; Main Contents

This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Who Must File

If you are a U.S. citizen or resident, whether you must file a federal income tax return depends upon your gross income, your filing status, your age, and whether you are a dependent. For details, see Table 1 and Table 2. You also must file if one of the situations described in Table 3 applies. The filing requirements apply even if you owe no tax.

You may have to pay a penalty if you are required to file a return but fail to. If you willfully fail to file a return, you may be subject to criminal prosecution.

For information on what form to use — Form 1040EZ, Form 1040A, or Form 1040 — see the instructions in your tax package.

Gross income. Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. If you are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. For a list of community property states, see Community property states under Married Filing Separately, later.

Self-employed persons. If you are self-employed in a business that provides services (where products are not a factor), your gross income from that business is the gross receipts. If you are self-employed in a business involving manufacturing, merchandising, or mining, your gross income from that business is the total sales minus the cost of goods sold. To this figure, you add any income from investments and from incidental or outside operations or sources.

You must file Form 1040 if you owe any self-employment tax.

Filing status. Your filing status generally depends on whether you are single or married. In some cases, it depends on other factors as well. Whether you are single or married is determined as of the last day of your tax year, which is December 31 for most taxpayers. Filing status is discussed in detail later in this publication.

Age. Age is a factor in determining if you must file a return only if you are 65 or older at the end of your tax year. For 2004, you are 65 or older if you were born before January 2, 1940.

Filing Requirements for Most Taxpayers

You must file a return if your gross income for the year was at least the amount shown on the appropriate line in Table 1. Dependents should see Table 2 instead.

Deceased Persons

You must file an income tax return for a decedent (a person who died) if both of the following are true.

You are the surviving spouse, executor, administrator, or legal representative.
The decedent met the filing requirements described in this publication at the time of his or her death.

For more information, see Final Return for Decedent in Publication 559.

Table 2. 2004 Filing Requirements for Dependents

See Exemptions for Dependents to find out if you are a dependent.

If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return.
In this table, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. Earned income includes wages, tips, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income.
Caution:If your gross income was $3,100 or more, you usually cannot be claimed as a dependent unless you were under age 19 or a full-time student under age 24. For details, see Gross Income Test under Dependency Tests.
Single dependents— Were you either age 65 or older or blind?
□	No. You must file a return if any of the following apply. Your unearned income was more than $800. Your earned income was more than $4,850. Your gross income was more than the larger of — $800, or Your earned income (up to $4,600) plus $250.

□	Yes. You must file a return if any of the following apply. Your unearned income was more than $2,000 ($3,200 if 65 or older and blind). Your earned income was more than $6,050 ($7,250 if 65 or older and blind). Your gross income was more than $1,200 ($2,400 if 65 or older and blind) plus the larger of: $800, or Your earned income (up to $4,600) plus $250.

Married dependents—Were you either age 65 or older or blind?
□	No. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your unearned income was more than $800. Your earned income was more than $4,850. Your gross income was more than the larger of — $800, or Your earned income (up to $4,600) plus $250.

□	Yes. You must file a return if any of the following apply. Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Your unearned income was more than $1,750 ($2,700 if 65 or older and blind). Your earned income was more than $5,800 ($6,750 if 65 or older and blind). Your gross income was more than $950 ($1,900 if 65 or older and blind) plus the larger of: $800 or Your earned income (up to $4,600) plus $250.

U.S. Citizens or Residents Living Abroad

For purposes of determining whether you must file a return, you must include in your gross income all of the income you earned abroad, including any income you can exclude under the foreign earned income exclusion. For more information on special tax rules that may apply to you, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Residents of Puerto Rico

Generally, if you are a U.S. citizen and a resident of Puerto Rico, you must file a U.S. income tax return if you meet the income requirements. This is in addition to any legal requirement you may have to file an income tax return with Puerto Rico.

If you are a resident of Puerto Rico for the whole year, your U.S. gross income does not include income from sources within Puerto Rico. However, include in your U.S. gross income any income you received for your services as an employee of the United States or any U.S. agency. If you receive income from Puerto Rican sources that is not subject to U.S. tax, you must reduce your standard deduction. This also reduces the amount of income you can have before you must file a U.S. income tax return.

For more information, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

Individuals With Income From U.S. Possessions

If you had income from Guam, the Commonwealth of Northern Mariana Islands, American Samoa, or the Virgin Islands, special rules may apply when determining whether you must file a U.S. federal income tax return. In addition, you may have to file a return with the individual island government. See Publication 570 for more information.

Dependents

A person who is a dependent may still have to file a return. This depends on the amount of the dependent's earned income, unearned income, and gross income. For details, see Table 2. A dependent may also have to file if one of the situations described in Table 3 applies.

Responsibility of parent. If a dependent child who must file an income tax return cannot file it for any reason, such as age, a parent, guardian, or other legally responsible person must file it for the child. If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words “By (your signature), parent for minor child.”

Earned income. This is salaries, wages, professional fees, and other amounts received as pay for work you actually perform. Earned income (only for purposes of filing requirements and the standard deduction) also includes any part of a scholarship that you must include in your gross income. See chapter 1 of Publication 970, Tax Benefits for Education, for more information on taxable and nontaxable scholarships.

Child's earnings. Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.

Unearned income. This is income such as interest, dividends, and capital gains. Trust distributions of interest, dividends, capital gains, and survivor annuities are considered unearned income also.

Election to report child's unearned income on parent's return. You may be able to include your child's interest and dividend income on your tax return. If you choose to do this, your child will not have to file a return. However, all of the following conditions must be met.

Your child was under age 14 at the end of 2004. (A child born on January 1, 1991, is considered to be age 14 at the end of 2004; you cannot make the election for this child.)
Your child is required to file a return for 2004 unless you make this election.
Your child had gross income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
The interest and dividend income was less than $8,000.
No estimated tax payment was made for 2004 and no 2003 overpayment was applied to 2004 under your child's name and social security number.
No federal income tax was withheld from your child's income under the backup withholding rules.
You are the parent whose return must be used when making the election to report your child's unearned income.

For more information, see Parent's Election To Report Child's Interest and Dividends in Publication 929, and Form 8814.

Other Situations

You may have to file a tax return even if your gross income is less than the amount shown in Table 1 or Table 2 for your filing status. See Table 3 for those other situations when you must file.

Table 3. Other Situations When You Must File a 2004 Return

If any of the four conditions listed below applied to you for 2004, you must file a return.
1.	You owe any special taxes, such as:
	•	Social security or Medicare tax on tips you did not report to your employer. (See Publication 531, Reporting Tip Income.)
	•	Uncollected social security, Medicare, or railroad retirement tax on tips you reported to your employer or on group-term life insurance. (See Publication 531 and the Form 1040 instructions for lines 58 and 62.)
	•	Alternative minimum tax. (See the Form 1040 instructions for line 44.)
	•	Tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. (See Publication 590, Individual Retirement Arrangements (IRAs), and Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.) But if you are filing a return only because you owe this tax, you can file Form 5329 by itself.
	•	Recapture taxes. (See the Form 1040 instructions for lines 43 and 62.)
2.	You received any advance earned income credit (EIC) payments from your employer. These payments should be shown in box 9 of your Form W–2. (See Publication 596, Earned Income Credit.)
3.	You had net earnings from self-employment of at least $400. (See Publication 533, Self-Employment Tax.)
4.	You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes. (See Publication 533.)

Who Should File

Even if you do not have to file, you should file a tax return to get money back if one of the following applies.

You had income tax withheld from your pay.
You qualify for the earned income credit. See Publication 596, Earned Income Credit (EIC), for more information.
You qualify for the additional child tax credit. See the instructions in your tax forms package for more information on this credit.
You qualify for the health coverage tax credit. For information about this credit, see Form 8885, Health Coverage Tax Credit.

Filing Status

You must determine your filing status before you can determine your filing requirements, standard deduction (discussed later), and correct tax. You figure your correct tax by using the Tax Computation Worksheet or the column in the Tax Table that applies to your filing status.

You also use your filing status in determining whether you are eligible to claim certain other deductions and credits.

There are five filing statuses:

Single,
Married Filing Jointly,
Married Filing Separately,
Head of Household, and
Qualifying Widow(er) With Dependent Child.

If more than one filing status applies to you, choose the one that will give you the lowest tax.

Marital Status

In general, your filing status depends on whether you are considered unmarried or married. A marriage means only a legal union between a man and a woman as husband and wife.

Unmarried persons. You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or a separate maintenance decree.

State law governs whether you are married or legally separated under a divorce or separate maintenance decree.

Divorced persons. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year.

Divorce and remarriage. If you obtain a divorce in one year for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intended to and did remarry each other in the next tax year, you and your spouse must file as married individuals.

Annulled marriages. If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. You must file amended returns (Form 1040X) claiming single or head of household status for all tax years affected by the annulment that are not closed by the statute of limitations for filing a tax return. The statute of limitations generally does not expire until 3 years after your original return was filed.

Head of household or qualifying widow(er) with dependent child. If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify.

Married persons. If you are considered married for the whole year, you and your spouse can file a joint return, or you can file separate returns.

Considered married. You are considered married for the whole year if on the last day of your tax year you and your spouse meet any one of the following tests.

You are married and living together as husband and wife.
You are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began.
You are married and living apart, but not legally separated under a decree of divorce or separate maintenance.
You are separated under an interlocutory (not final) decree of divorce. For purposes of filing a joint return, you are not considered divorced.

Spouse died during the year. If your spouse died during the year, you are considered married for the whole year for filing status purposes.

If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child.

If you remarried before the end of the tax year, you can file a joint return with your new spouse. Your deceased spouse's filing status is married filing separately for that year.

Married persons living apart. If you live apart from your spouse and meet certain tests, you may be considered unmarried. If this applies to you, you can file as head of household even though you are not divorced or legally separated. If you qualify to file as head of household instead of as married filing separately, your standard deduction will be higher. Also, your tax may be lower, and you may be able to claim the earned income credit. See Head of Household, later.

Single

Your filing status is single if, on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree, and you do not qualify for another filing status. To determine your marital status on the last day of the year, see Marital Status, earlier.

Your filing status may be single if you were widowed before January 1, 2004, and did not remarry in 2004. However, you might be able to use another filing status that will give you a lower tax. See Head of Household and Qualifying Widow(er) With Dependent Child, later, to see if you qualify.

How to file. You can file Form 1040EZ (if you have no dependents, are under 65 and not blind, and meet other requirements), Form 1040A, or Form 1040. If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Use the Single column of the Tax Table, or Section A of the Tax Computation Worksheet, to figure your tax.

Married Filing Jointly

You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.

If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.

If you and your spouse each have income, you may want to figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). You can choose the method that gives the two of you the lower combined tax.

How to file. If you file as married filing jointly, you can use Form 1040 or Form 1040A. If you have no dependents, are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. If you file Form 1040 or Form 1040A, show this filing status by checking the box on line 2. Use the Married filing jointly column of the Tax Table, or Section B of the Tax Computation Worksheet, to figure your tax.

Spouse died during the year. If your spouse died during the year, you are considered married for the whole year and can choose married filing jointly as your filing status. See Spouse died during the year, under Married persons, earlier.

Divorced persons. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose married filing jointly as your filing status.

Filing a Joint Return

Both you and your spouse must include all of your income, exemptions, and deductions on your joint return.

Accounting period. Both of you must use the same accounting period, but you can use different accounting methods.

Joint responsibility. Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.

Divorced taxpayer. You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns.

Relief from joint responsibility. In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse which were incorrectly reported on the joint return. You can ask for relief no matter how small the liability.

There are three types of relief available.

Innocent spouse relief, which applies to all joint filers.
Separation of liability, which applies to joint filers who are divorced, widowed, legally separated, or who have not lived together for the 12 months ending on the date election of this relief is filed.
Equitable relief, which applies to all joint filers who do not qualify for innocent spouse relief or separation of liability and to married couples filing separate returns in community property states.

You must file Form 8857, Request for Innocent Spouse Relief, to request any of these kinds of relief. Publication 971, Innocent Spouse Relief, explains these kinds of relief and who may qualify for them.

Signing a joint return. For a return to be considered a joint return, both husband and wife generally must sign the return.

Spouse died before signing. If your spouse died before signing the return, the executor or administrator must sign the return for your spouse. If neither you nor anyone else has yet been appointed as executor or administrator, you can sign the return for your spouse and print “Filing as surviving spouse” in the area where you sign the return.

Spouse away from home. If your spouse is away from home, you should prepare the return, sign it, and send it to your spouse to sign so that it can be filed on time.

Injury or disease prevents signing. If your spouse cannot sign because of injury or disease and tells you to sign, you can sign your spouse's name in the proper space on the return followed by the words “By (your name), Husband (or Wife).” Be sure to also sign in the space provided for your signature. Attach a dated statement, signed by you, to the return. The statement should include the form number of the return you are filing, the tax year, the reason your spouse cannot sign, and that your spouse has agreed to your signing for him or her.

Signing as guardian of spouse. If you are the guardian of your spouse who is mentally incompetent, you can sign the return for your spouse as guardian.

Spouse in combat zone. If your spouse is unable to sign the return because he or she is serving in a combat zone (such as the Persian Gulf area, Yugoslavia, or Afghanistan), or a qualified hazardous duty area (such as Bosnia and Herzegovina, Croatia, or Macedonia), and you do not have a power of attorney or other statement, you can sign for your spouse. Attach a signed statement to your return that explains that your spouse is serving in a combat zone. For more information on special tax rules for persons who are serving in a combat zone, or who are in missing status as a result of serving in a combat zone, get Publication 3, Armed Forces' Tax Guide.

Other reasons spouse cannot sign. If your spouse cannot sign the joint return for any other reason, you can sign for your spouse only if you are given a valid power of attorney (a legal document giving you permission to act for your spouse). Attach the power of attorney (or a copy of it) to your tax return. You can use Form 2848.

Nonresident alien or dual-status alien. A joint return generally cannot be filed if either spouse is a nonresident alien at any time during the tax year. However, if one spouse was a nonresident alien or dual-status alien who was married to a U.S. citizen or resident at the end of the year, the spouses can choose to file a joint return. If you do file a joint return, you and your spouse are both treated as U.S. residents for the entire tax year. See chapter 1 of Publication 519.

Married Filing Separately

You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.

If you and your spouse do not agree to file a joint return, you have to use this filing status unless you qualify for head of household status, discussed next.

You may be able to choose head of household filing status if you live apart from your spouse, meet certain tests, and are considered unmarried (explained later, under Head of Household). This can apply to you even if you are not divorced or legally separated. If you qualify to file as head of household, instead of as married filing separately, your tax may be lower, you may be able to claim the earned income credit and certain other credits, and your standard deduction will be higher. The head of household filing status allows you to choose the standard deduction even if your spouse chooses to itemize deductions. See Head of Household, later, for more information.

Unless you are required to file separately, you should figure your tax both ways (on a joint return and on separate returns). This way you can make sure you are using the filing status that results in the lowest combined tax. However, you will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules , later.

How to file. If you file a separate return, you generally report only your own income, exemptions, credits, and deductions on your individual return. You can claim an exemption for your spouse if your spouse had no gross income and was not the dependent of another person. However, if your spouse had any gross income or was the dependent of someone else, you cannot claim an exemption for him or her on your separate return.

If you file as married filing separately, you can use Form 1040A or Form 1040. Select this filing status by checking the box on line 3 of either form. You also must enter your spouse's social security number and full name in the spaces provided. Use the Married filing separately column of the Tax Table or Section C of the Tax Computation Worksheet to figure your tax.

Special Rules

If you choose married filing separately as your filing status, the following special rules apply. Because of these special rules, you will usually pay more tax on a separate return than if you used another filing status that you qualify for.

Your tax rate generally will be higher than on a joint return.
Your exemption amount for figuring the alternative minimum tax will be half that allowed to a joint return filer.
You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 if you filed a joint return).
You cannot take the earned income credit.
You cannot take the exclusion or credit for adoption expenses in most cases.
You cannot take the education credits (the Hope credit and the lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.
If you lived with your spouse at any time during the tax year:
1. You cannot claim the credit for the elderly or the disabled.
2. You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received, and
3. You cannot roll over amounts from a traditional IRA into a Roth IRA.
The following credits and deductions are reduced at income levels that are half of those for a joint return:
1. The child tax credit,
2. The retirement savings contributions credit,
3. Itemized deductions, and
4. The deduction for personal exemptions.
Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).
If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

Individual retirement arrangements (IRAs). You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse was covered by an employee retirement plan at work during the year. Your deduction is reduced or eliminated if your income is more than a certain amount. This amount is much lower for married individuals who file separately and lived together at any time during the year. For more information, see How Much Can You Deduct? in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs).

Rental activity losses. If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income up to $25,000. This is called a special allowance. However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. See Rental Activities in Publication 925, Passive Activity and At-Risk Rules.

Community property states. If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. See Publication 555, Community Property.

Joint Return After Separate Returns

You can change your filing status by filing an amended return using Form 1040X.

If you or your spouse (or both of you) file a separate return, you generally can change to a joint return any time within 3 years from the due date of the separate return or returns. This does not include any extensions. A separate return includes a return filed by you or your spouse claiming married filing separately, single, or head of household filing status.

Separate Returns After Joint Return

Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return.

Exception. A personal representative for a decedent can change from a joint return elected by the surviving spouse to a separate return for the decedent. The personal representative has 1 year from the due date of the return to make the change. See Publication 559 for more information on filing income tax returns for a decedent.

Head of Household

You may be able to file as head of household if you meet all the following requirements.

You are unmarried or “considered unmarried” on the last day of the year.
You paid more than half the cost of keeping up a home for the year.
A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). However, your dependent parent does not have to live with you. See Special rule for parent, later, under Qualifying Person. A foster child must live with you all year. Also, see Table 4, later.

If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately. You will also receive a higher standard deduction than if you file as single or married filing separately.

How to file. If you file as head of household, you can use either Form 1040A or Form 1040. Indicate your choice of this filing status by checking the box on line 4 of either form. Use the Head of a household column of the Tax Table or Section D of the Tax Computation Worksheet to figure your tax.

Considered Unmarried

You are considered unmarried on the last day of the tax year if you meet all the following tests.

You file a separate return (defined, earlier, under Joint Return After Separate Returns).
You paid more than half the cost of keeping up your home for the tax year.
Your spouse did not live in your home during the last 6 months of the tax year. Your spouse is considered to live in your home even if he or she is temporarily absent due to special circumstances. See Temporary absences, later.
Your home was the main home of your child, stepchild or adopted child for more than half the year or was the main home of your foster child for the entire year. (See Home of qualifying person, later, for rules applying to a child's birth, death, or temporary absence during the year.)
You must be able to claim an exemption for the child. However, you can still meet this test if you cannot claim the exemption only because of one of the three situations described under Exception on page 16. The general rules for claiming an exemption for a dependent are explained later under Exemptions for Dependents.

If you were considered married for part of the year and lived in a community property state (listed earlier under Married Filing Separately ), special rules may apply in determining your income and expenses. See Publication 555 for more information.

Nonresident alien spouse. You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien. However, your spouse is not a qualifying person for head of household purposes. You must have another qualifying person and meet the other tests to be eligible to file as a head of household.

Earned income credit. Even if you are considered unmarried for head of household purposes because you are married to a nonresident alien, you are still considered married for purposes of the earned income credit (unless you meet the five tests listed earlier under Considered Unmarried). You are not entitled to the credit unless you file a joint return with your spouse and meet other qualifications. See Publication 596 for more information.

Choice to treat spouse as resident. You are considered married if you choose to treat your spouse as a resident alien. See chapter 1 of Publication 519.

Keeping Up a Home

To qualify for head of household status, you must pay more than half of the cost of keeping up a home for the year. You can determine whether you paid more than half of the cost of keeping up a home by using the Cost of Keeping Up a Home worksheet, next.

Cost of Keeping Up a Home


	Amount You Paid	Total Cost
Property taxes	$	$
Mortgage interest expense
Rent
Utility charges
Upkeep and repairs
Property insurance
Food consumed on the premises
Other household expenses
Totals	$	$

Minus total amount you paid		( )

Amount others paid		$

If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home.

Costs you include. Include in the cost of upkeep expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home.

Costs you do not include. Do not include in the cost of upkeep expenses such as clothing, education, medical treatment, vacations, life insurance, or transportation. Also, do not include the rental value of a home you own or the value of your services or those of a member of your household.

Qualifying Person

See Table 4 to see who is a qualifying person.

Any person not described in Table 4 is not a qualifying person.

Home of qualifying person. Generally, the qualifying person must live with you for more than half of the year.

Special rule for parent. You may be eligible to file as head of household even if the parent for whom you can claim an exemption does not live with you. You must pay more than half the cost of keeping up a home that was the main home for the entire year for your father or mother. You are keeping up a main home for your father or mother if you pay more than half the cost of keeping your parent in a rest home or home for the elderly.

Death or birth. You may be eligible to file as head of household if the individual who qualifies you for this filing status is born or dies during the year. You must have provided more than half of the cost of keeping up a home that was the individual's main home for more than half of the year, or, if less, the period during which the individual lived.

Example.

You are unmarried. Your mother, for whom you can claim an exemption, lived in an apartment by herself. She died on September 2. The cost of the upkeep of her apartment for the year until her death was $6,000. You paid $4,000 and your brother paid $2,000. Your brother made no other payments towards your mother's support. Your mother had no income. Because you paid more than half of the cost of keeping up your mother's apartment from January 1 until her death, and you can claim an exemption for her, you can file as a head of household.

Temporary absences. You and your qualifying person are considered to live together even if one or both of you are temporarily absent from your home due to special circumstances such as illness, education, business, vacation, or military service. It must be reasonable to assume that the absent person will return to the home after the temporary absence. You must continue to keep up the home during the absence.

Kidnapped child. You may be eligible to file as head of household, even if the child who is your qualifying person has been kidnapped. You can claim head of household filing status if all the following statements are true.

The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family.
In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping.
You would have qualified for head of household filing status if the child had not been kidnapped.

This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of:

The year there is a determination that the child is dead, or
The year the child would have reached age 18.

Qualifying Widow(er) With Dependent Child

If your spouse died in 2004, you can use married filing jointly as your filing status for 2004 if you otherwise qualify to use that status. The year of death is the last year for which you can file jointly with your deceased spouse. See Married Filing Jointly, earlier.

You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. For example, if your spouse died in 2003 and you have not remarried, you may be able to use this filing status for 2004 and 2005. The rules for using this filing status are explained in detail here.

This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). This status does not entitle you to file a joint return.

How to file. If you file as a qualifying widow(er) with dependent child, you can use either Form 1040A or Form 1040. Indicate your filing status by checking the box on line 5 of either form. Use the Married filing jointly column of the Tax Table or Section B of the Tax Computation Worksheet to figure your tax.

Table 4. Who Is a Qualifying Person for Filing as Head of Household? ¹

IF the person is your . . .	AND . . .	THEN that person is . . .
parent, grandparent, brother, sister, stepbrother, stepsister, stepmother, stepfather, mother-in-law, father-in-law, half brother, half sister, brother-in-law, sister-in-law, son-in-law, or daughter-in-law	you can claim an exemption for him or her ²	a qualifying person.
	you cannot claim an exemption for him or her	not a qualifying person.
uncle, aunt, nephew, or niece	he or she is related to you by blood and you can claim an exemption for him or her ^{2, 3}	a qualifying person.
	he or she is not related to you by blood ³	not a qualifying person.
	you cannot claim an exemption for him or her
child, grandchild, stepchild, or adopted child	he or she is single	a qualifying person. ⁴
	he or she is married and you can claim an exemption for him or her ²	a qualifying person.
	he or she is married and you cannot claim an exemption for him or her	not a qualifying person. ⁵
foster child ⁶	the child lived with you all year and you can claim an exemption for him or her ²	a qualifying person.
	the child did not live with you all year, or you cannot claim an exemption for him or her	not a qualifying person.
¹ A person cannot qualify more than one taxpayer to use the head of household filing status for the year.
² If you can claim an exemption for a person only because of a multiple support agreement, that person cannot be a qualifying person. See Multiple Support Agreement.
³ You are related by blood to an uncle or aunt if he or she is the brother or sister of your mother or father. You are related by blood to a nephew or niece if he or she is the child or your brother or sister.
⁴ This child is a qualifying person even if you cannot claim an exemption for the child.
⁵ This child is a qualifying person if you could claim an exemption for the child except that the child's other parent claims the exemption under the special rules for a noncustodial parent discussed under Support Test for Child of Divorced or Separated Parents.
⁶ The term “foster child” is defined under Exemptions for Dependents.

Eligibility rules. You are eligible to file your 2004 return as a qualifying widow(er) with dependent child if you meet all the following tests.

You were entitled to file a joint return with your spouse for the year your spouse died. It does not matter whether you actually filed a joint return.
Your spouse died in 2002 or 2003 and you did not remarry before the end of 2004.
You have a child, stepchild, adopted child, or foster child for whom you can claim an exemption.
You paid more than half of the cost of keeping up a home that was the main home for you and that child for the entire year, except for temporary absences. See Temporary absences and Keeping Up a Home, discussed earlier under Head of Household.

Example.

John Reed's wife died in 2002. John has not remarried. He has continued during 2003 and 2004 to keep up a home for himself and his child for whom he can claim an exemption. For 2002 he was entitled to file a joint return for himself and his deceased wife. For 2003 and 2004 he can file as a qualifying widower with a dependent child. After 2004 he can file as head of household if he qualifies.

Death or birth. You may be eligible to file as a qualifying widow(er) with dependent child if the child who qualifies you for this filing status is born or dies during the year. You must have provided more than half of the cost of keeping up a home that was the child's main home during the entire part of the year he or she was alive.

Kidnapped child. You may be eligible to file as a qualifying widow(er) with dependent child, even if the child who qualifies you for this filing status has been kidnapped. You can claim qualifying widow(er) with dependent child filing status if all the following statements are true.

The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family.
In the year of the kidnapping, the child lived with you for more than half the part of the year before the kidnapping.
You would have qualified for qualifying widow(er) with dependent child filing status if the child had not been kidnapped.

As mentioned earlier, this filing status is available for only 2 years following the year your spouse died.

Exemptions

Exemptions reduce your taxable income. Generally, you can deduct $3,100 for each exemption you claim in 2004. If you are entitled to two exemptions for 2004, you would deduct $6,200 ($3,100 × 2). But you may lose the benefit of part or all of your exemptions if your adjusted gross income is above a certain amount. See Phaseout of Exemptions, later.

You usually can claim exemptions for yourself, your spouse, and each person you can claim as a dependent.

Types of exemptions. There are two types of exemptions: personal exemptions and exemptions for dependents. While each is worth the same amount ($3,100 for 2004), different rules, discussed later, apply to each type.

Who cannot claim a personal exemption. If you are entitled to claim an exemption for a dependent (such as your child), that dependent cannot claim a personal exemption on his or her own tax return.

How to claim exemptions. How you claim an exemption on your tax return depends on which form you file.

Form 1040EZ filers. If you file Form 1040EZ, the exemption amount is combined with the standard deduction and entered on line 5.

Form 1040A filers. If you file Form 1040A, complete lines 6a through 6d. The total number of exemptions you can claim is the total in the box on line 6d. Also complete line 26 by multiplying the number in the box on line 6d by $3,100.

Form 1040 filers. If you file Form 1040, complete lines 6a through 6d. On line 41, multiply the total exemptions shown in the box on line 6d by $3,100 and enter the result. If your adjusted gross income is more than $107,025, see Phaseout of Exemptions, later.

U.S. citizen or resident. If you are a U.S. citizen or resident, or a resident of Canada or Mexico, you may qualify for any of the exemptions discussed here.

Nonresident aliens. Generally, if you are a nonresident alien (other than a resident of Canada or Mexico, or certain residents of India, Japan, or Korea), you can qualify for only one personal exemption for yourself. You cannot claim exemptions for a spouse or dependents.

These restrictions do not apply if you are a nonresident alien married to a citizen or resident of the United States and have chosen to be treated as a resident of the United States.

For information on exemptions if you are a nonresident alien, see chapter 5 in Publication 519.

Dual-status taxpayers. If you have been both a nonresident alien and a resident alien in the same tax year, you should get Publication 519 for information on determining your exemptions.

Personal Exemptions

You are generally allowed one exemption for yourself and, if you are married, one exemption for your spouse. These are called personal exemptions.

Your Own Exemption

You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer.

Single persons. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself. This is true even if the other taxpayer does not actually claim your exemption.

Married persons. If you file a joint return, you can take your own exemption. If you file a separate return, you can take your own exemption only if another taxpayer is not entitled to claim you as a dependent.

Your Spouse's Exemption

Your spouse is never considered your dependent. You may be able to take one exemption for your spouse only because you are married.

Joint return. On a joint return, you can claim one exemption for yourself and one for your spouse.

Separate return. If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse's exemption. This is also true if your spouse is a nonresident alien.

Head of household. If you qualify for head of household filing status because you are considered unmarried, you can claim an exemption for your spouse if the conditions described in the preceding paragraph are satisfied.

To claim the exemption for your spouse, check the box on line 6b of Form 1040 or Form 1040A and enter the name of your spouse in the space to the right of the box. Enter the SSN or ITIN of your spouse in the space provided at the top of Form 1040 or Form 1040A.

Death of spouse. If your spouse died during the year, you generally can claim your spouse's exemption under the rules just explained in Joint return and Separate return.

If you remarried during the year, you cannot take an exemption for your deceased spouse.

If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. If you file a joint return with your new spouse, you can be claimed as an exemption only on that return.

Divorced or separated spouse. If you obtained a final decree of divorce or separate maintenance by the end of the year, you cannot take your former spouse's exemption. This rule applies even if you provided all of your former spouse's support.

Exemptions for Dependents

You are allowed one exemption for each person you can claim as a dependent.

To claim the exemption for a dependent, you must meet all five of the dependency tests discussed later. You can claim an exemption for your dependent even if your dependent files a return.

If you are entitled to claim an exemption for your dependent, that dependent cannot claim his or her personal exemption.

Kidnapped child. You may be eligible to claim the exemption for a child even if the child has been kidnapped. Both of the following statements must be true.

The child must be presumed by law enforcement authorities to have been kidnapped by someone who is not a member of your family or the child's family.
The child must have qualified as your dependent for the part of the year before the kidnapping.

If both statements are true, the child is treated as your dependent and you qualify to claim the exemption.

This treatment applies for all years until the child is returned. However, the last year this treatment can apply is the earlier of:

The year there is a determination that the child is dead, or
The year the child would have reached age 18.

Child born alive. If your child was born alive during the year, and the dependency tests are met, you can claim the exemption. This is true even if the child lived only for a moment. State or local law must treat the child as having been born alive. There must be proof of a live birth shown by an official document, such as a birth certificate.

Stillborn child. You cannot claim an exemption for a stillborn child.

Death of dependent. If your dependent died during the year and otherwise met the dependency tests, you can claim the exemption for your dependent.

Example.

Your dependent mother died on January 15. The five dependency tests are met. You can claim the exemption for her on your return.

Housekeepers, maids, or servants. If these people work for you, you cannot claim exemptions for them.

Figure A. Can You Claim an Exemption for a Dependent?

Child tax credit. You may be entitled to a child tax credit for each of your qualifying children for whom you can claim an exemption. For more information, see the instructions in your tax forms package.

Dependency Tests

The following five tests must be met for you to claim an exemption for a dependent.

1. Member of Household or Relationship Test.

2. Citizen or Resident Test.

3. Joint Return Test.

4. Gross Income Test.

5. Support Test.

1. Member of Household or Relationship Test

To meet this test, a person must either:

Live with you for the entire year as a member of your household, or
Be related to you in one of the ways listed later under Relatives who do not have to live with you.

If at any time during the year the person was your spouse, that person cannot be your dependent. However, see Personal Exemptions, earlier.

Temporary absences. A person lives with you as a member of your household even if either (or both) of you are temporarily absent due to special circumstances. Temporary absences due to special circumstances include absences because of illness, education, business, vacation, or military service.

If the person is placed in a nursing home for an indefinite period of time to receive constant medical care, the absence is considered temporary.

Death or birth. A person who died during the year, but was a member of your household until death, will meet the member of household test. The same is true for a child who was born during the year and was a member of your household for the rest of the year. The test is also met if a child would have been a member except for any required hospital stay following birth.

Local law violated. A person does not meet the member of household test if at any time during your tax year the relationship between you and that person violates local law.

Example.

Your girlfriend lived with you as a member of your household all year. However, your relationship with her violated the laws of the state where you live, because she was married to someone else. Therefore, she does not meet this test and you cannot claim her as a dependent.

Relatives who do not have to live with you. A person related to you in any of the following ways does not have to live with you for the entire year as a member of your household to meet this test.

Your child, grandchild, great grandchild, etc. (A legally adopted child is considered your child.)
Your stepchild.
Your brother, sister, half brother, half sister, stepbrother, or stepsister.
Your parent, grandparent, or other direct ancestor, but not foster parent.
Your stepfather or stepmother.
A brother or sister of your father or mother.
A son or daughter of your brother or sister.
Your father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law.

Any of these relationships that were established by marriage are not ended by death or divorce.

Adoption. Even if your adoption of a child is not yet final, the child is considered to be your child if he or she was placed with you for legal adoption by an authorized placement agency. The child must also be a member of your household, but does not have to be a member of your household for the entire year.

If the child was not placed with you by an authorized placement agency, the child will meet this test only if he or she was a member of your household for your entire tax year.

Authorized placement agency. An authorized placement agency includes any person or court authorized by state law to place children for legal adoption.

Foster child. A foster child must live with you as a member of your household for the entire year to qualify as your dependent. For this test, a foster child is one who is in your care that you care for as your own child. It does not matter how the child became a member of the household.

Cousin. You can claim an exemption for your cousin only if he or she lives with you as a member of your household for the entire year. A cousin is a descendant of a brother or sister of your father or mother.

Joint return. If you file a joint return, you do not need to show that a person is related to both you and your spouse. You also do not need to show that a person is related to the spouse who provides support.

For example, your spouse's uncle who receives more than half of his support from you may be your dependent, even though he does not live with you. However, if you and your spouse file separate returns, your spouse's uncle can be your dependent only if he is a member of your household and lives with you for your entire tax year.

2. Citizen or Resident Test

You cannot claim an exemption for a dependent unless that person is a U.S. citizen or resident, or a resident of Canada or Mexico, for some part of the calendar year in which your tax year begins. However, there is an exception for certain adopted children, as explained next.

Children's place of residence. Children usually are citizens or residents of the country of their parents.

If you were a U.S. citizen when your child was born, the child may be a U.S. citizen although the other parent was a nonresident alien and the child was born in a foreign country. If so, and the other dependency tests are met, you can take the exemption. It does not matter if the child lives abroad with the nonresident alien parent.

Adopted child. If you are a U.S. citizen who has legally adopted a child who is not a U.S. citizen or resident, and the other dependency tests are met, you can take the exemption if your home is the child's main home and the child is a member of your household for your entire tax year.

Foreign students' place of residence. Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U.S. residents and do not meet the citizen or resident test. You cannot claim an exemption for them. However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. See Expenses Paid for Student Living With You in Publication 526, Charitable Contributions.

3. Joint Return Test

Even if the other dependency tests are met, you generally are not allowed an exemption for your dependent if he or she files a joint return.

Example.

You supported your daughter for the entire year while her husband was in the Armed Forces. The couple files a joint return. Even though all the other tests are met, you cannot take an exemption for your daughter.

Exception. The joint return test does not apply if a joint return is filed by the dependent and his or her spouse merely as a claim for refund and no tax liability would exist for either spouse on separate returns.

Example.

Your son and his wife each had less than $3,000 of wages and no unearned income. Neither is required to file a tax return. Taxes were taken out of their pay, so they filed a joint return to get a refund. You are allowed to take exemptions for your son and daughter-in-law if the other dependency tests are met, even though they filed a joint return.

4. Gross Income Test

Generally, you cannot take an exemption for a dependent if that person had gross income of $3,100 or more for 2004. This test does not apply if the person is your child and is either:

Under age 19 at the end of the year, or
A student under age 24 at the end of the year.

The exceptions for children under age 19 and students under age 24 are discussed in detail later.

If you file on a fiscal year basis, the gross income test applies to the calendar year in which your fiscal year begins.

Gross income defined. All income in the form of money, property, and services that is not exempt from tax is gross income.

In a manufacturing, merchandising, or mining business, gross income is the total net sales minus the cost of goods sold, plus any miscellaneous income from the business.

Gross receipts from rental property are gross income. Do not deduct taxes, repairs, etc., to determine the gross income from rental property.

Gross income includes a partner's share of the gross (not a share of the net) partnership income.

Gross income also includes all unemployment compensation and certain scholarship and fellowship grants. Scholarships received by degree candidates that are used for tuition, fees, supplies, books, and equipment required for particular courses may not be included in gross income. For more information about scholarships, see chapter 1 of Publication 970, Tax Benefits for Education.

Tax-exempt income, such as certain social security payments, is not included in gross income.

Disabled dependents. For this gross income test, gross income does not include income received by a permanently and totally disabled individual for services performed at a sheltered workshop. The availability of medical care must be the main reason the individual is at the workshop. Also, the income must come solely from activities at the workshop that are incident to this medical care. A sheltered workshop is a school operated by certain tax-exempt organizations, or by a state, a U.S. possession, a political subdivision of a state or possession, the United States, or the District of Columbia, that provides special instruction or training designed to alleviate the disability of the individual.

Child defined. For purposes of the gross income test, your child is your son, stepson, daughter, stepdaughter, a legally adopted child, or a child who was placed with you by an authorized placement agency for your legal adoption. A foster child who was a member of your household for your entire tax year is also considered your child.

Child under age 19. If your child is under 19 at the end of the year, the gross income test does not apply. Your child can have any amount of income and you still can claim an exemption if the other dependency tests, including the support test, are met.

Example.

Marie, 18, earned $4,000. Her father provided more than half her support. Because Marie is under 19, the gross income test does not apply. If the other dependency tests were met, Marie's father can claim an exemption for her.

Student under age 24. The gross income test does not apply if your child is a student who is under age 24 at the end of the calendar year. The other dependency tests still must be met.

Student defined. To qualify as a student, your child must be, during some part of each of 5 calendar months during the calendar year (not necessarily consecutive):

A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or
A student taking a full-time, on-farm training course given by a school described in (1) above or a state, county, or local government.

Full-time student defined. A full-time student is a person who is enrolled for the number of hours or courses the school considers to be full-time attendance.

School defined. The term “school” includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, and night schools.

Example.

James, 22, attends college as a full-time student. During the summer, James earned $4,000. If the other dependency tests are met, his parents can take the exemption for James.

Vocational high school students. People who work on “co-op” jobs in private industry as a part of the school's prescribed course of classroom and practical training are considered full-time students.

Night school. Your child is not a full-time student while attending school only at night. However, full-time attendance at a school can include some attendance at night as part of a full-time course of study.

5. Support Test

Generally, you must provide more than half of a person's total support during the calendar year to meet the support test. However, there are special rules that apply in the following two situations.

Two or more persons provide support, but no one person provides more than half of a person's total support. See Multiple Support Agreement, later.
The person supported is the child of divorced or separated parents. See Support Test for Child of Divorced or Separated Parents, later.

How to determine if test is met. You figure whether you have provided more than half of a person's total support by comparing the amount you contributed to that person's support with the entire amount of support that person received from all sources. This includes support the person provided from his or her own funds.

You may find Worksheet 1 helpful in figuring whether you provided more than half of a person's support.

Worksheet 1. Worksheet for Determining Support

Keep for your Records

Funds Belonging to the Person You Supported
1.	Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year	1.
2.	Enter the amount on line 1 that was used for the person's support	2.
3.	Enter the amount on line 1 that was used for other purposes	3.
4.	Enter the total amount in the person's savings and other accounts at the end of the year	4.
5.	Add lines 2 through 4. (This amount should equal line 1.)	5.
Expenses for Entire Household (where the person you supported lived)
6.	Lodging (complete line 6a or 6b):
	6a. Enter the total rent paid	6a.
	6b. Enter the fair rental value of the home. If the person you supported owned the home, also include this amount in line 20.	6b.
7.	Enter the total food expenses	7.
8.	Enter the total amount of utilities (heat, light, water, etc. not included in line 6a or 6b)	8.
9.	Enter the total amount of repairs (not included in line 6a or 6b)	9.
10.	Enter the total of other expenses. Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance.	10.
11.	Add lines 6a through 10. These are the total household expenses	11.
12.	Enter total number of persons who lived in the household	12.
Expenses for the Person You Supported
13.	Divide line 11 by line 12. This is the person's share of the household expenses	13.
14.	Enter the person's total clothing expenses	14.
15.	Enter the person's total education expenses	15.
16.	Enter the person's total medical and dental expenses not paid for or reimbursed by insurance	16.
17.	Enter the person's total travel and recreation expenses