if the amount of debt forgiven (box 2 less box 7) when added to any other unearned income of the dependent's (interest, dividends, capital gains is more than $1150, this being unearned income, the dependent must file.
the next question can you claim that person as a dependent?
yes if the dependent is a qualifying child or qualifying relative
you can claim them as a qualifying child if all these tests are met
• they have the same principal abode as you for more than 1/2 the tax year. Temporary absences are ignored
• if. they are not a full-time student, they're under 19 at the end of the tax year. If a full-time student, they're under 24 at the end of the tax year.
• .they haven’t provided over ½ their own support
•. they didn't file a joint return unless there was no tax liability but merely filed jointly to facilitate a refund of taxes withheld or estimates paid
or you can claim them as a qualifying relative if all these tests are met
.• they’re related to you or a member of your household for the entire tax year
.• their gross income for 2022 is less than $4,400
.• you provided over ½ their support
.• they aren't a qualifying child of another taxpayer
.
that $4400 would include the debt cancelled.
another complication is that the dependent may be subject to the kiddie tax if ALL these conditions apply
- The child's unearned income was more than $2,300.
- The child meets one of the following age requirements:
- The child was under age 18 at the end of the tax year,
- The child was age 18 at the end of the tax year and didn't have earned income that was more than half of the child's support, or
- The child was a full-time student at least age 19 and under age 24 at the end of the tax year and the child didn't have earned income that was more than half of the child's support.
- At least one of the child's parents was alive at the end of the tax year.
- The child is required to file a tax return for the tax year.
- The child does not file a joint return for the tax year.
either the dependent includes form 8615 with their return which requires the parents to complete their return first or the parent(s) report the unearned income on their return by using form 8814
