Question

1. In year 1, the Ennetts’ 25-year-old daughter, Jane, is a full-time student at an out-of-state university, but she plans to return home after the school year ends. In previous years, Jane has never worked, and her parents have always been able to claim her as a dependent. In year 1, a kind neighbor offers to pay for all of Jane’s educational and living expenses. Which of the following statements is most accurate regarding whether Jane’s parents would be allowed to claim an exemption for Jane in year 1, assuming the neighbor pays for all of Jane’s support?

1. No, Jane must include her neighbor’s gifts as income and thus fails the gross income test for a qualifying relative.
2. Yes, because she is a full-time student and does not provide more than half of her own support, Jane is considered her parent’s qualifying child.
3. No, Jane is too old to be considered a qualifying child and fails the support test of a qualifying relative.
4. Yes, because she is a student, her absence is considered as “temporary.” Consequently, she meets the residence test and is considered a qualifying child of the Bennetts.

Answer 1

A person should pass four tests (being Relationship, Age, Residency, Support) to be considered as qualifying dependent for claiming exemption.

The residence test : The person has the same residence as that of taxpayer for more than half the tax year. Exceptions apply for temporary absence.

Jane meets the residence test and is considered qualifying child of Bennetts as she falls under the exceptions to the residence test.

Hence, the accurate answer is (C).