Discussion:Qualifying Relative and Gross Income
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Discussion Forum Index --> Tax Questions --> Qualifying Relative and Gross Income
| 22 February 2007 | |
| A taxpayer earned less than $700 in wages and $20 in interest and dividends in 2006. They have a 1099-B that shows proceeds of $4260. Once cost basis for the stocks are figured their income for the year is less than $1000.
They meet the other tests for Qualifying Relative status, they lived with another taxpayer all year and the other taxpayer provided more than 50% of their support, Question is about the gross income test, does the basis of the stock get subtracted to get to the gross income or is the basis not factored into the gross income for the purpose of this test? I appreciate any insight and help in this matter. | |
| 22 February 2007 | |
| On my 1040's, line 22 is labeled "Total income". Line 37 is labeled "Adjusted Gross Income". In both cases, neither total includes basis, only the net gain. | |
| 22 February 2007 | |
| The basis of the stocks is NOT considered or deducted to figure her gross income so in this case, the taxpayer's gross income is over $3.300 so she would not meet the Gross Income Test and would not qualify to be another person's qualifying relative dependent. | |
| 22 February 2007 | |
| I would tend to disagree, although I understand the reasoning. What if the child sold $25,000 worth of mutual funds at at $5,000 loss? Under the prior poster's reasoning, many children could never be dependents, and I don't believe this is what congress intended at all. Especially the so called "pro-family" congress'. | |
| 22 February 2007 | |
| Kevinh5,
In your example, the gross income test does not apply since it is the taxpayer's child. In the original poster's example, the person is a relative, not a child, of the taxpayer so the gross income test does apply to the child. For this test, gross income is defined as all income not exempt from taxes. In the examples given in Publication 501, page 14, rents from property is considered as the gross income (rental expenses are not allowed to be deducted from rental income) and for a partnership, a partner's share of the gross partnership income is considered as the gross income (partnership expenses are not allowed to be deducted from partnership income). I think that the stock income without the stock basis would be considered the gross income for the gross income test for a relative. | |
| 22 February 2007 | |
| Kevinh5 gave you the correct answer. The gross amount realized from the sale of stock is not included in gross income; however, the gain realized from the sale of stock is included in gross income. See Sec. 61(a)(3) and Reg. 1.61-6(a). | |
| 22 February 2007 | |
| I stand corrected, Riley2 provided the correct citation.
The person would qualify to be claimed as a qualifying relative dependent as they would meet the gross income test because the basis of the stocks sold would be deducted from the gross sales proceeds. | |
Death&Taxes (talk|edits) said: | 22 February 2007 |
| Very interesting: Business income is measured by what I would call gross profit on sales, and rents are considered before expenses for this test, in both cases ignoring current year 'overhead.' Yet the sale of a stock which might have been purchased years ago or gifted to the individual, and which creates immediate cash for support, is measured after cost is applied. Note too that a rental partnership, which might be passive (as opposed to actively managed) could rule out the deduction. | |
| 22 February 2007 | |
| Thank you all. My first thought was that they would qualify as the gains or loss from the schedule D is reported on line 13 and used to arrive at the total income. | |
| 22 February 2007 | |
| Yes, very interesting that in one situation expenses (cost of goods sold, etc) are not allowed and in the other the expenses (stock basis) are allowed. | |
Ranweilersr (talk|edits) said: | 21 May 2007 |
| Let's add to the discussion.
Taxpayer's son meets all tests as a dependent for 2007. 1. no one else can claim him. 2. unmarried u.s. citizen. 3. dad provides over half his support although son is over age 24 The klinker is that son's only income is $ 5000 of capital gains for 2007. can we save the exemption by gifting sufficient stock to son and having him sell stock at a loss sufficient to reduce his AGI below $ 3300? Ranweilersr 15:19, 21 May 2007 (CDT) | |
Death&Taxes (talk|edits) said: | 21 May 2007 |
| He can't take the loss; when stock is gifted and value is less than cost, his basis becomes value on date of gift. He can get the gains but not the loss; you would have to hope it tanked further after the gift. | |
| 21 May 2007 | |
| Agree with D&T. Also, capital losses do not reduce gross income. See Reg. Sec. 1.61-6. | |
