Using the Dependency Exemption For a Non-Relative

Almost anyone who lives with you and you support, and who is not someone else’s dependent, can be a “qualifying relative” and qualify as your dependent.

Can someone who is not related to you qualify as your dependent for tax purposes? The answer is “yes.” A good example is provided by Derrick Ballard-Bey, a Washington D.C. resident who helped out a homeless friend and ended up saving on his taxes.

Ballard-Bey was apparently exceptionally close to a childhood friend named Darcy Abney, who was homeless and unemployed. Ballard-Bey permitted Abney to share his apartment for more than two years, and also provided him with food. This arrangement continued after Ballard-Bey married his girlfriend Kimberley and Kimberly moved into Ballard-Bey’s apartment. However, two months after the marriage, a dispute over Abney’s presence in the apartment led to Ballard-Bey and his wife separating.

Ballard-Bey took a dependency exemption for Darcy on his tax returns for the two years Darcy lived with him, claiming that he provided more than 50% of Darcy’s support. The IRS denied the exemptions, but the tax court upheld them on appeal.

The tax court noted a taxpayer is entitled to a dependency exemption deduction only if the claimed dependent is a “qualifying child” or a “qualifying relative.” Darcy did not qualify as a qualifying child of Ballard-Bey; however, he was a “qualifying relative,” though he was not related by blood to Ballard-Bey.

A qualifying relative is an individual:

  • who has a “qualifying relationship” to the taxpayer claiming him or her as a dependent
  • whose gross income for the year is less than the federal personal exemption amount
  • who receives over one-half of his or her support from the taxpayer for the tax year, and
  • who is not a qualifying child of the taxpayer or of any other taxpayer for the tax year.

There are eight types of “qualifying relationships” that can qualify a person as a dependent. Seven of these involve various types of familial relationships, none of which applied to Ballard-Bey and his friend Darcy. However, the eighth type of qualifying relationship applies to an individual, other than the taxpayer’s spouse, who has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household for the tax year. For an individual to be considered a member of a taxpayer’s household, the taxpayer must maintain the household and both the taxpayer and the individual must occupy the household for the entire year (but temporary absences don’t count). A taxpayer maintains a household when he or she pays more than one-half of the expenses for the household.

The tax court believed Ballard-Bey’s testimony and a notarized statement he submitted that Abney lived with him in his apartment during the two years, that he paid the rent and provided food for the home, and that Abney had no other source of income or support during those years. Because Abney had no other source of income or support, the court assumed that Ballard-Bey provided more than one-half of Abney's support. Thus, Abney was a qualifying relative and Ballard-Bey was entitled to a dependency exemption for him. (Ballard-Bey v. Comm’r, T.C. Summ. Op. 2014-62.)

Almost anyone who lives with you and you support, and who is not someone else’s dependent, can be a “qualifying relative” and qualify as your dependent. This could, for example, include a girlfriend or boyfriend who lives with you and you support.

A dependency exemption works just like a tax deduction: It reduces your taxable income so you end up paying less income tax. Clearly, it’s well worth claiming a dependency exemption for everyone and anyone who qualifies as your dependent. The IRS has an application called Who Can I Claim as a Dependent? on its website that you can use to determine whether a person qualifies as your dependent for tax purposes.

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