Dependent question

[Margaret CPA in OH]

Adult daughter of client has disability income of $8500, not taxable, and gross proceeds from cd's of $6100, face amount of $6100.  As this $6100 exceeds the threshold of $4150 for a person's gross income, does she qualify as dependent?  The basis equals the proceeds so no tax is due BUT the gross receipts are $6100.  Pub 501 does not seem to address net taxable security sales just gross income.  Thanks for quick reply!

[Lion EA]

Is the daughter qualified as disabled? If so, then age does not matter. Does she then meet the requirements to be a Qualified Child (and not have to be a Qualified Relative)? If so, the only income limitation is does daughter pay more than half her own support. I'm not sure, but that's the path I'd investigate.

[Margaret CPA in OH]

Daughter is considered disabled emotionally, age 59, so not child but relative. I think at 65 it converts to regular SS.  I have the worksheet but don't know whether to include the $6100.  The SS is not included for this support test even thought the worksheet Line 1 says to include taxable and nontaxable income.  I know the $6100 gross proceeds could be the difference as she pays all her money for medical expenses and share of food and own clothing plus grandchild gifts and vacation expenses.  If GROSS income is used ($8500 + $6100), she provides more than her own support. 

 

[jklcpa]

24 minutes ago, Margaret CPA in OH said:

Adult daughter of client has disability income of $8500, not taxable, and gross proceeds from cd's of $6100, face amount of $6100.  As this $6100 exceeds the threshold of $4150 for a person's gross income, does she qualify as dependent?  The basis equals the proceeds so no tax is due BUT the gross receipts are $6100.  Pub 501 does not seem to address net taxable security sales just gross income.  Thanks for quick reply!

 

Take a look at Cornell Law's online code, sec 152(d)(1)(B) reads as  "Qualifying Relative...whose gross income for the calendar year in which such taxable year begins is less than the exemption amount (as defined in sec 151(d))."

Gross income had this pop up (can't link to that directly) that says this:  (ETA - the link to gross income on that page I linked to is pointing at something else now, and this quote was taken from an older post on this forum when that page was working and pointing to the proper definition). 

 

Quote

 

gross income

(ii)For purposes of clause (i), in the case of 1 or more sales or other dispositions of stock or securities, the term “gross income” includes only the excess of— (I)the net short-term capital gain from such sales or dispositions, over (II)the net long-term capital loss from such sales or dispositions. (C) (i)The aggregate amount which may be reported as dividends under subparagraph (A) shall not exceed the aggregate dividends received by the company for the taxable year. (ii)The aggregate amount which may be reported as qualified dividend income under subparagraph (B) shall not exceed the sum of— (I)the qualified dividend income of the company for the taxable year, and (II)the amount of any earnings and profits which were distributed by the company for such taxable year and accumulated in a taxable year with respect to which this part did not apply.

 

 

Edited October 1, 2019 by jklcpa
added ETA statement

[Margaret CPA in OH]

Thanks Lion and Judy, it appears as though she qualifies as a dependent.  Disability income does not count no matter the amount and gross cd redemption income offset by basis leaving no taxable income doesn't count.  What she contributes to her own support is apparently irrelevant.  This mom and daughter will be happy as they need all the help they can manage!

Thanks again...

 

[Medlin Software, Dennis]

Thanks to all for working hard for the OP's client.  Those of us who deal with disabled children are often left on our own to find out how to best help our kids...  We have run into "professionals" who have had less knowledge than they should, and often must rely on the wider community to get suggestions and answers.

"all the help they can get": In most localities, there are disability "rights" organizations which can sometimes represent disabled people, and always can steer towards quality advice.  In our case, we recently went to a free seminar where a former SSA employee gave some great advice in plain language.  While your client likely has been dealing with the process for some time, even those of us who have, should always be listening for changes, new interpretations, and for things we have missed.  If I knew then what I know now... can be costly (as I again recently found out).  I did not realize there was an auto qualifier for utility discount if a household person is receiving benefits, which for us, will be more than 20%!  I knew about the plan, but they buried the auto qualifier deep, and only plainly show the income qualifiers.  For SSI recipients, CA recently joined the majority in allows recipients to qualify for food benefits... which the person who shared to me about the utility discount had missed.  And, since my daughter's benefits will eventually be based on my SS amount, I need to be sure not to file before my benefit hers will be calculated on is at it's max, and I severely regret some of the choices I made regarding income in my young adult life, zero and low SS wage years are painful, should I not make it to max benefit age for her.