Exemptions

Exemptions reduce your income before you figure your tax. There are two types of exemptions.

• Personal exemptions.
• Exemptions for dependents.

While both types of exemptions are worth the same amount, different rules apply to each.

You generally can claim one exemption for yourself. If you are married and file a joint return, you can claim your own exemption and one for your spouse. If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income and was not a dependent of another taxpayer. You also can claim one exemption for each person qualifying as your dependent who meets five specific tests.

You may be eligible to claim an exemption for a child, even if the child has been kidnapped. See Kidnapped children under Exemptions for Dependents in Publication 501.

For 2001, you generally can deduct $2,900 for each exemption you claim for yourself, your spouse, and each person who qualifies as your dependent.

If another taxpayer can claim an exemption for you or your spouse, you cannot claim the exemption on your tax return. If you can claim an exemption for a dependent, that dependent cannot claim an exemption on his or her own tax return.

To claim an exemption for a dependent on your tax return, you must list either the social security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN) for that person on your return.

For more information on exemptions, see Publication 501.

If you do not list the dependent's SSN, ITIN, or ATIN, the exemption may be disallowed.

Dependents

A dependent is a person, other than you or your spouse, who meets the dependency tests. You can claim a dependency exemption if all five of the following tests are met.

1. Member of household or relationship test. To meet this test, the 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 under Relatives who do not have to live with you, in Publication 501.
2. Citizen or resident test. To meet this test, the person must be 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. Children are usually 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 (see Alien Status, earlier) and the child was born in a foreign country.

   You can claim your child's exemption if the child is a U.S. citizen and meets the other tests. It does not matter that the child lives abroad with the nonresident alien parent.

   If you are a citizen or national of the United States and you legally adopt a child who is not a U.S. citizen or resident, you can claim the child's exemption if:

1. The other tests are met,
2. The child had your home as his or her main home for the year, and
3. The child was a member of your household for the year.
   Example. Sergeant John Smith is a U.S. citizen and has been in the U.S. Army for 16 years. He is stationed in Germany. He and his wife, a German citizen, have a 2-year old son who was born in Germany and who has dual citizenship (U.S. and Germany). Sergeant Smith's stepdaughter, a German citizen whom he has not adopted, also lives with them. Only his son can be considered a U.S. citizen for whom a dependency exemption can be claimed. His stepdaughter does not qualify as a U.S. citizen or resident.
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. However, the joint return test does not apply if a joint return is filed by your dependent and his or her spouse merely as a claim for refund and no tax liability would exist for either spouse on separate returns.
4. Gross income test. To meet the gross income test, the person must have gross income of less than $2,900. This test does not apply if the person is your child and is either under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student during 5 calendar months of the year.
5. Support test. To be considered your dependent, the person generally must receive more than half of his or her support from you during the year. To figure if you provided more than half the support of a person, you must first determine the total support provided from all sources for that person.

   Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.

   Generally, the amount of an item of support is the amount of the expense incurred to provide it. If the item is lodging, the amount of the item is the fair rental value.

Expenses that are not directly related to any one member of a household, such as the cost of food for the household, must be divided among the members of the household.

Divorced or separated parents. Different rules apply to the support test for children of divorced or separated parents. These rules are discussed in Publication 501.

Dependency allotments. You can authorize an allotment from your pay for the support of your dependents. The amount is considered as provided by you in figuring whether you provide more than half the dependent's support.

If an allotment is used to support persons other than those you name, you can claim exemptions for them if they otherwise qualify as your dependent.

Example. Army Sergeant Jeff Banks authorizes an allotment for his widowed mother. She uses the money to support herself and Jeff's 10-year-old sister. If that amount provides more than half their support, Jeff can claim an exemption for each of them, if they otherwise qualify, even though he only authorized the allotment for his mother.

Dependent in the Armed Forces. Generally, an exemption cannot be claimed for a person who is in the Armed Forces or is at one of the Armed Forces academies for the entire year because the support test will not have been met. However, if your dependent receives only partial support from the Armed Forces, you can still claim the exemption if you provided more than half his or her support and the other tests are met.

Example. Leslie James is 18 and single. She graduated from high school in June 2001 and entered the U.S. Air Force in September 2001. Leslie provided $4,400 (her wages of $3,400 and $1,000 for other items provided by the Air Force) for her support that year. Her parents provided $4,100. Her parents cannot claim a dependency exemption for her for 2001 because they did not provide more than half her support.

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