There's a tax option for non-relatives living under one roof
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Children, spouses and blood relatives aren't the only ones who can qualify as dependents on federal income tax returns. An IRS rule that many taxpayers overlook also allows people to claim girlfriends or boyfriends as dependents -- as long as they meet certain criteria.
"The tax law allows a dependency deduction for 2012 for someone that a person supports and meets certain dependency tests," said Emanuel DiNatale, an accountant at the Alpern Rosenthal public accounting firm, Downtown.
"Most people think of this generally to mean children," he said. "However, the law is broader than children and allows a deduction for 'qualifying relatives.' Although this is defined mainly to be related persons -- mother, father, sister, brother, etc. -- it also includes any individual that has the same principal residence of the taxpayer and is a member of the household. This is where a 'friend' fits in."
As long as a girlfriend or boyfriend lives under your roof and your household is their primary residence, that person could qualify as a dependent on your federal income tax return, entitling you to an exemption worth $3,800.
Four main criteria must be met: The individuals must be U.S. citizens. They must be unmarried, or if they are married, they can not file a joint return with someone else. The person claiming the deduction must have provided more than 50 percent of their support for that tax year. And the girlfriend or boyfriend must not have earned more than $3,800 in gross income for that tax year.
Jenny Jenkins, a spokeswoman for the Internal Revenue Service in Columbus, Ohio, said generally speaking, "qualifying relatives" are blood relations, but they do not necessarily have to be.
"If certain tests are met," she said, "namely, the household or relationship test, gross income tests and support test, then -- provided that the relationship doesn't violate local law -- it may be possible for a taxpayer to claim a non-relative as a qualifying relative for the purpose of receiving a tax exemption.
"I'd recommend anyone who believes they may be in this category contact the IRS to determine if they meet head-of-household filing status requirements and are eligible to claim a non-relation as a qualifying relative."
One of the stipulations regarding girlfriend and boyfriend exemptions states that "a person does not meet this test if at any time during the year the relationship between you and that person violates local law."
An example of that would be if your girlfriend or boyfriend lived with you but the relationship violated the laws of the state where you live because that person was married to someone else.
But Pittsburgh family lawyer David Slesnick said he is unaware of any Pennsylvania law that makes it illegal for a married person to live with someone other than his or her spouse.
"We have plenty of married people separate all the time and live with someone else prior to the divorce, and I am not aware of anything in Pennsylvania law that makes that illegal," he said.
According to GoBankingRates.com, a national personal finance website, taxpayers who want to claim their significant other as a dependent should keep documents on hand just in case the IRS challenges the exemption.
Those documents include records showing you shared the same address, such as canceled checks and receipts for groceries, utilities and rent. You also should keep receipts for clothing, education, medical and recreational expenses that you incurred while supporting the girlfriend or boyfriend.
"Claiming a tax exemption for costs associated with supporting a boyfriend or girlfriend throughout the year is not commonly done, only because many filers don't realize they're actually allowed to do it," said Jennifer Calonia, an editor and contributing writer at GoBankingRates.com in El Segundo, Calif. "As long as all four IRS tests are successfully met, taxpayers can look forward to a federal exemption to the tune of $3,800, which is significant."
Mr. DiNatale noted that single people with more than $250,000 of income will have a phase-out of the dependency exemption. This means that 2 percent of the amount will be lost for each $1,250 the person earns above the $250,000 mark. The taxpayer loses all dependency exemptions at $372,500 in income.
But under most circumstances, he said, the $3,800 deduction will result in a federal tax savings as high as $1,330.
"Keep in mind that if your friend has a child that also lives with you as his or her principal residence and meets the tests, you can claim the child too for another $3,800," he said.
"Now the down side is that, with a savings of $1,330, it will probably still cost you more than this to support another person. The upside is that it may surely lead to a long-term relationship."
First Published March 14, 2013 12:00 am