Question

In meeting the gross income test for claiming his father as a dependent, James must consider the income received by his father. This income included gross rents of $3,000 (expenses were $2,000), municipal bond interest of $1,000, dividends of $1,500, and Social Security of $4,000. What is James' father's gross income for the qualifying relative test purposes in 2019? will you please explain the answer

Answer 1

Ans: Gross Income- The gross-income test is one of the five necessary tests that dependents must pass before they can be claimed. The gross-income test mandates that dependents cannot earn more than a certain amount of income each year which is $4200 for 2019. The candidate must be over 18 years or 23 years if full time student.

What is included in Gross Income:

1. Individual's combined sources of income in all form of money.

2. Gross Income namely includes, Net sales less the cost of goods sold, gross receipts from rental properties, any business income, all taxable social security benefits, taxable unemployment compensation.

3. In Gross-Income dependancy test, Social Security payments or other tax-exempt income are not included in the gross income.

James cannot claim his Father as dependent relative as his Gross Income is more than $4200 in 2019.

Explanation-

Computation of Gross Income of James Father:

Description	Amount
Gross Income from Rents	$3000
Municipal Bond Interest (Exempt from Tax)	0
Dividend Income	$1500
Social Security (See Point 3)	0
Total Gross Income	$4500

The total Gross Income of James father is $4500 which is more than $4200. Therefore, he is not qualified to be a dependent.