My mother moved in with me from out of state in Sept 08 to finish recovering from a serous illness. Her only income was a monthly disability check. Her home went on the market and sold in July 09 for $135K, minus about $10K of the proceeds for repairs and clean-up. She has purchased a new home near me for around $106K. She will use the remainder to get caught up on dr. bills, etc.

It has occurred to me that because of her home sale I likely will not be able to claim her as a dependent on my taxes for this year either. Am I correct, or is there any legal way to get around counting the proceeds from her home sale as income? She was never able to help me out with living expenses, and I was hoping to mitigate that situation by claiming her.

No you can not claim your mother as dependent as you did not provide more than half of her support.

To be a dependent there are two things to consider - her gross income and wheter you provided at least half her support.

Your mother's gross income must be less than $3500 to qualify as a dependent (unless she is disabled). So if her house sale is taxable, and assuming her gain is more than $3,500, she can't be your dependent. BUT, if her sale is exempt from tax (as it may be), then I think you can argue that the sale proceeds are not included in her gross income.

As for whether you provided half her support or not - the mere fact that she has money from the sale does not mean you didn't provide at least half of her support. What's important is who actually spent money on things like food, shelter, transportation, clothing, etc for her? If she sold her house and banked the proceeds, then it's quite possible that you did indeed provide at least half her support.

Thanks for the responses. For nearly a year I have covered all of my mother's food, shelter, transportation. She was unable to help me with utilities, and has only recently (since the sale of her home in July) purchased groceries a few times.


BUT, if her sale is exempt from tax (as it may be), then I think you can argue that the sale proceeds are not included in her gross income.
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How can I ensure that her home sale is exempt from tax? Her illness rendered her disabled.

Her home sale is not taxed if she meets the rules to exclude it. Assuming she is single, she can exclude up to $250K of gain if she used the home as her main residence for at least 2 of the previous 5 years and hasn't taken an exclusion on sale of another home in the past two years. See details here:
http://www.irs.gov/pub/irs-pdf/p523.pdf

If she is truly disabled, then you don't need to worry about what her gross income is - you can claim her as a dependent as long as you provide at least half her support. Do you have documentation that shows she is disabled?

If she is truly disabled, then you don't need to worry about what her gross income is - you can claim her as a dependent as long as you provide at lease half her support. Do you have documentation that shows she is disabled?

Thanks, I'll check out the rules. I'll be certain that I can obtain documentation that she is disabled before I attempt to claim her as a dependent.

A doctor's statement regarding her disability is all that is needed.