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Dependency exemptions: Two out of three ain’t bad

by on
in Small Business Tax

Q. After her divorce, our daughter and her two small children moved into our home. Can we claim all three as our tax dependents?

A. Probably not. Assuming your daughter is working, you cannot claim a dependency exemption for her if her gross income for 2009 exceeds $3,650.

But the grandkids are another story. They can be treated as “qualifying children” for tax purposes if your daughter doesn’t claim them as dependents on her own return. The children must have lived in your home for more than half of the year. Also, you’ll need to verify that your daughter’s ex is not entitled to claim the kids as his dependents.

Tip: Dependency exemptions begin to phase out at $250,200 of AGI ($166,800 for single filers).

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