Publication 501
Exemptions, Standard Deduction, and Filing Information

For use in preparing 2002 Returns

If you are not in the trade or business of providing foster care and your unreimbursed out-of-pocket expenses in caring for a foster child were mainly to benefit an organization qualified to receive deductible charitable contributions, the expenses are deductible as charitable contributions, but are not considered support you provided. For more information about the deduction for charitable contributions, see Publication 526. If your unreimbursed expenses are not deductible as charitable contributions, they are considered support you provided.

If you are in the trade or business of providing foster care, your unreimbursed expenses are not considered support provided by you.

Example.   Lauren, a foster child, lived with Mr. and Mrs. Smith. The Smiths cared for Lauren because they wanted to adopt her, not as a trade or business or to benefit the agency that placed her in their home. The Smiths' unreimbursed expenses are not deductible as charitable contributions, but are considered support they provided for Lauren.

Home for the aged.   If you make a lump-sum advance payment to a home for the aged to take care of your relative for life and the payment is based on that person's life expectancy, the amount of support you provide each year is the lump-sum payment divided by the relative's life expectancy. The amount of support you provide also includes any other amounts that you provided during the year.

Total Support

To figure if you provided more than half of the support of a person, you must first determine the total support provided 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 in providing that item. For lodging, the amount of support is the fair rental value of the lodging.

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.

Example 1.   Grace Brown, mother of Mary Miller, lives with Frank and Mary Miller and their two children. Grace gets social security benefits of $2,400, which she spends for clothing, transportation, and recreation. Grace has no other income. Frank and Mary's total food expense for the household is $5,200. They pay Grace's medical and drug expenses of $1,200. The fair rental value of the lodging provided for Grace is $1,800 a year, based on the cost of similar rooming facilities. Figure Grace's total support as follows:

Because the support Frank and Mary provide ($1,800 lodging + $1,200 medical expenses + $1,040 food = $4,040) is more than half of Grace's $6,440 total support, and Grace meets the other dependency tests, they can claim an exemption for her.

Example 2.   Your parents live with you, your spouse, and your two children in a house you own. The fair rental value of your parents' share of the lodging is $2,000 a year, which includes furnishings and utilities. Your father receives a nontaxable pension of $4,200, which he spends equally between your mother and himself for items of support such as clothing, transportation, and recreation. Your total food expense for the household is $6,000. Your heat and utility bills amount to $1,200. Your mother has hospital and medical expenses of $600, which you pay during the year. Figure your parents' total support as follows:

You must apply the support test separately to each parent. You provide $2,000 ($1,000 lodging, $1,000 food) of your father's total support of $4,100 - less than half. You provide $2,600 to your mother ($1,000 lodging, $1,000 food, $600 medical) - more than half of her total support of $4,700. You meet the support test for your mother, but not your father. Heat and utility costs are included in the fair rental value of the lodging, so these are not considered separately.

Lodging defined.   Lodging is the fair rental value of the room, apartment, or house in which the person lives. It includes a reasonable allowance for the use of furniture and appliances, and for heat and other utilities.

Fair rental value defined.   This is the amount you could reasonably expect to receive from a stranger for the same kind of lodging. It is used in place of rent or taxes, interest, depreciation, paint, insurance, utilities, cost of furniture and appliances, etc. In some cases, fair rental value may be equal to the rent paid.

If you provide the total lodging, the amount of support you provide is the fair rental value of the room the person uses, or a share of the fair rental value of the entire dwelling if the person has use of your entire home. If you do not provide the total lodging, the total fair rental value must be divided depending on how much of the total lodging you provide. If you provide only a part and the person supplies the rest, the fair rental value must be divided between both of you according to the amount each provides.

Example.   Your parents live rent free in a house you own. It has a fair rental value of $5,400 a year furnished, which includes a fair rental value of $3,600 for the house and $1,800 for the furniture. This does not include heat and utilities. The house is completely furnished with furniture belonging to your parents. You pay $600 for their utility bills. Utilities are not usually included in rent for houses in the area where your parents live. Therefore, you consider the total fair rental value of the lodging to be $6,000 ($3,600 fair rental value of the unfurnished house, $1,800 allowance for the furnishings provided by your parents, and $600 cost of utilities) of which you are considered to provide $4,200 ($3,600 + $600).

Person living in his or her own home.   The total fair rental value of a person's home that he or she owns is considered support contributed by that person.

Living with someone rent free.   If you live with a person rent free in his or her home, you must reduce the amount you provide for support by the fair rental value of lodging he or she provides you.

Property.   Property provided as support is measured by its fair market value. Fair market value is the price that property would sell for on the open market. It is the price that would be agreed upon between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.

Capital expenses.   Capital items, such as furniture, appliances, and cars, that are bought for a person during the year can be included in total support under certain circumstances.

The following examples show when a capital item is or is not support.

Example 1.   You buy a $200 power lawn mower for your 13-year-old child. The child is given the duty of keeping the lawn trimmed. Because a lawn mower is ordinarily an item you buy for personal and family reasons that benefits all members of the household, you cannot include the cost of the lawn mower in the support of your child.

Example 2.   You buy a $150 television set as a birthday present for your 12-year-old child. The television set is placed in your child's bedroom. You can include the cost of the television set in the support of your child.

Example 3.   You pay $5,000 for a car and register it in your name. You and your 17-year-old daughter use the car equally. Because you own the car and do not give it to your daughter but merely let her use it, you cannot include the cost of the car in your daughter's total support. However, you can include in your daughter's support your out-of-pocket expenses of operating the car for her benefit.

Example 4.   Your 17-year-old son, using personal funds, buys a car for $4,500. You provide all the rest of your son's support - $4,000. Since the car is bought and owned by your son, the car's fair market value ($4,500) must be included in his support. The $4,000 support you provide is less than half of his total support of $8,500. You cannot claim an exemption for your son.

Medical insurance premiums.   Medical insurance premiums you pay, including premiums for supplementary Medicare coverage, are included in the support you provide.

Medical insurance benefits.   Medical insurance benefits, including basic and supplementary Medicare benefits, are not part of support.

Tuition payments and allowances under the GI Bill.   Amounts veterans receive under the GI Bill for tuition payments and allowances while they attend school are included in total support.

Example.   During the year, your son receives $2,200 from the government under the GI Bill. He uses this amount for his education. You provide the rest of his support - $2,000. Because GI benefits are included in total support, your son is not your dependent.

Other support items.   Other items may be considered as support depending on the facts in each case. For example, if you pay someone to provide child care or disabled dependent care, you can include these payments as support, even if you claim a credit for them. For information on the credit, see Publication 503, Child and Dependent Care Expenses.

Do Not Include
in Total Support

The following items are not included in total support.

1. Federal, state, and local income taxes paid by persons from their own income.
2. Social security and Medicare taxes paid by persons from their own income.
3. Life insurance premiums.
4. Funeral expenses.
5. Scholarships received by your child if your child is a full-time student.
6. Survivors' and Dependents' Educational Assistance payments used for the support of the child who receives them.

Multiple Support Agreement

Sometimes no one provides more than half of the support of a person. Instead, two or more persons, each of whom would be able to take the exemption but for the support test, together provide more than half of the person's support.

When this happens, you can agree that any one of you who individually provides more than 10% of the person's support, but only one, can claim an exemption for that person. Each of the others must sign a statement agreeing not to claim the exemption for that year. The person who claims the exemption must keep these signed statements for his or her records. A multiple support declaration identifying each of the others who agreed not to claim the exemption must be attached to the return of the person claiming the exemption. Form 2120, Multiple Support Declaration, can be used for this purpose.

Example 1.   You, your sister, and your two brothers provide the entire support of your mother for the year. You provide 45%, your sister 35%, and your two brothers each provide 10%. Either you or your sister can claim an exemption for your mother. The other must sign a statement agreeing not to take an exemption for your mother. The one who claims the exemption must attach Form 2120, or a similar declaration, to his or her return and must keep the statement signed by the other for his or her records. Because neither brother provides more than 10% of the support, neither can take the exemption and neither has to sign a statement.

Example 2.   You and your brother each provide 20% of your mother's support for the year. The remaining 60% of her support is provided equally by two persons who are not related to her. She does not live with them. Because more than half of her support is provided by persons who cannot claim an exemption for her, no one can take the exemption.

Example 3.   Your father lives with you and receives 25% of his support from social security, 40% from you, 24% from his brother, and 11% from a friend. Either you or your uncle can take the exemption for your father if the other signs a statement agreeing not to. The one who takes the exemption must attach Form 2120, or a similar declaration, to his return and must keep for his records the signed statement from the one agreeing not to take the exemption.

Support Test for Child of
Divorced or Separated Parents

The support test for a child of divorced or separated parents is based on the special rules explained here and shown in Figure B. However, these special rules apply only if all of the following are true.

1. The parents are divorced or legally separated under a decree of divorce or separate maintenance, or separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year.
2. One or both parents provide more than half of the child's total support for the calendar year.
3. One or both parents have custody of the child for more than half of the calendar year.

Child is defined earlier under Gross Income Test.

This discussion does not apply if the support of the child is determined under a multiple support agreement, discussed earlier.

Figure B. Support Test for Children of Divorced or Separated Parents

General rule.   The parent who has custody of the child for the greater part of the year (the custodial parent) is generally treated as the parent who provides more than half of the child's support. It does not matter whether the custodial parent actually provided more than half of the support.

Custody.   Custody is usually determined by the terms of the most recent decree of divorce or separate maintenance, or a later custody decree. If there is no decree, use the written separation agreement. If neither a decree nor agreement establishes custody, then the parent who has the physical custody of the child for the greater part of the year is considered to have custody of the child. This also applies if the validity of a decree or agreement awarding custody is uncertain because of legal proceedings pending on the last day of the calendar year.

If the parents are divorced or separated during the year and had joint custody of the child before the separation, the parent who has custody for the greater part of the rest of the year is considered to have custody of the child for the tax year.

Example 1.   Under the terms of your divorce, you have custody of your child for 10 months of the year. Your former spouse has custody for the other 2 months. You and your former spouse provide the child's total support. You are considered to have provided more than half of the support of the child. However, see Exception, later.

Example 2.   You and your former spouse provided your child's total support for 2002. For the first 8 months of the year, you had custody of your child under your 1994 divorce decree (the most recent decree at the time). On August 31, 2002, a new custody decree granted custody to your former spouse. Because you had custody for the greater part of the year, you are considered to have provided more than half of your child's support, unless the exception described next applies.

Exception.   The noncustodial parent will be treated as providing more than half of the child's support if:

1. The custodial parent signs a written declaration, discussed later, that he or she will not claim the exemption for the child, and the noncustodial parent attaches this written declaration to his or her return,
2. The custodial parent signed a decree or agreement executed after 1984 stating that he or she will not claim the exemption for the child, and that the noncustodial parent can claim an exemption for the child without regard to any condition such as payment of support, and the noncustodial parent attaches to his or her return the documentation described later under Divorce decree or separation agreement made after 1984, or
3. A decree or agreement executed before 1985 provides that the noncustodial parent is entitled to the exemption, and he or she provides at least $600 for the child's support during the year, unless the pre-1985 decree or agreement is modified after 1984 to specify that this provision will not apply.

Noncustodial parent.   The noncustodial parent is the parent who has custody of the child for the shorter part of the year or who does not have custody at all.

Example.   Under the terms of your 1984 divorce decree, your former spouse has custody of your child. The decree specifically states that you are entitled to the exemption. You provide at least $600 in child support during the calendar year. You are considered to have provided more than half of the child's support.

Written declaration.   The custodial parent may use either Form 8332 or a similar statement (containing the information required by the form) to make the written declaration to release the exemption to the noncustodial parent. The noncustodial parent must attach the form or statement to his or her tax return.

The exemption can be released for a single year, for a number of specified years (for example, alternate years), or for all future years, as specified in the declaration. If the exemption is released for more than one year, the original release must be attached to the return of the noncustodial parent for the first year, and a copy must be attached for each later year.

Table 6. Deduction for Exemptions Worksheet

Divorce decree or separation agreement made after 1984.   If your divorce decree or separation agreement was executed after 1984, the noncustodial parent does not have to attach Form 8332 if both of the following requirements are met.

1. The decree or agreement is signed by the custodial parent and states all of the following.
   1. The custodial parent will not claim the child as a dependent for the year.
   2. The noncustodial parent can claim the child as a dependent without regard to any condition, such as payment of support.
   3. The years for which the noncustodial parent, rather than the custodial parent, can claim the child as a dependent.
2. The noncustodial parent attaches a copy of the following pages of the decree or agreement to his or her tax return.
   1. The cover page (write the other parent's social security number on this page).
   2. The pages that contain the information shown in item (1).
   3. The signature page with the other parent's signature and the date of the agreement.

If these requirements are not met, the noncustodial parent must attach to his or her return Form 8332 or a similar statement from the custodial parent releasing the exemption.

Child support.   All child support payments actually received from the noncustodial parent are considered used for the support of the child.

Example.   The noncustodial parent provides $1,200 for the child's support. This amount is considered support provided by the noncustodial parent even if the $1,200 was actually spent on things other than support.

Paid in a later year.   If you fail to pay child support in the year it is due, but pay it in a later year, your payment of the overdue amount is not considered paid for the support of your child either for the year the payment was due or for the year it is paid. It is payment of an amount you owed to the custodial parent, but it is not considered paid by you for the support of your child.

Example.   You owed but failed to pay child support last year. This year, you pay all of the amount owed from last year and the full amount due for this year. Your payment of this year's child support counts as your support for this year, but payment of the amount owed from last year does not count as support either for this year or for last year.

Third-party support.   Support provided by a third party for a divorced or separated parent is not included as support provided by that parent. However, see Remarried parent, below.

Example.   You are divorced. During the entire year you and your child live with your mother in a house she owns. The fair rental value of the lodging provided by your mother for your child is $3,000. The home provided by your mother is not included in the amount of support you provide.

Remarried parent.   If you remarry, the support provided by your new spouse is treated as provided by you.

Example.   You have two children from a former marriage who live with you. You have remarried and are living in a home owned by your new spouse. The fair rental value of the home provided to the children by your new spouse is treated as provided by you.

Home jointly owned.   If you and your former spouse have the right to use and live in the home, each of you is considered to provide half of your child's lodging. However, if the divorce decree gives only you the right to use and live in the home, you are considered to provide your child's entire lodging. It does not matter if the legal title to the home remains in the names of both parents.

Parents who never married.   These special rules for divorced or separated parents do not apply to parents who never married each other. If this is your situation, you must provide more than half the support of your child or enter into a multiple support agreement, as discussed earlier, to satisfy the support test.

Example.   You never married the father of your child and do not live with him, but he provides the home you and your child live in. The fair rental value of the lodging he provides to your child is $3,000 a year. You provide the rest of your child's support for the year, which is $1,200. The special rules for a child of divorced or separated parents do not apply because you and the child's father never married. As a result, you cannot claim an exemption for your child because you did not provide more than half of the child's support.

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