Father-In-Law intends on claiming my Wife as a Dependent

[Jon]

    My Wife and I got married in December, 2021. I intended to file a return as Married and Jointly, but learned today that her father intends to claim her as a dependent, as she lived with them from January to August of 2021.
    My wife was 20-21 years old during the year of 2021 and was not a student during that time. She grossed over $10k during the year from her job. While he certainly provided for more than half of her living expenses during the time she lived there, can he still claim her as a dependent?
    Unfortunately, it throws a wrench in my acquisition of the American Opportunity tax credit, as I was a full-time student during 2021, but am no longer eligible for that credit if my wife is claimed as a dependent by her father. What's the right course of action here? Can he, indeed, claim her as a dependent?

[Bsch4477]

You can't claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.

 If he insists on claiming her anyway you should try to file first and his return would be rejected. If he files first you would have to mail your return and the IRS will send you letters to sort it out. But he has no right to claim her. 

[Hal_Al · Accepted solution]

@Bsch4477  said "You can't claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid"

While that's true, you do have the option (your option, not the father's) to file as Married Filing Separately (MFS)to allow him to claim her IF HE OTHERWISE QUALIFIES.

But, he does NOT qualify to claim her and would be guilty of filing an erroneous return by doing so.  

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. She does not qualify as a QC because she is too old and was not a full time student. She does not qualify as a qualifying relative because her income was over $4300.  Support, alone, does not allow him to claim her. 

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

Putting it bluntly, you have too much to lose and he has too little gain.  It's financially  a bad decision  and probably illegal (I'm not a lawyer).

[Hal_Al]

Even in a case where the parents do qualify to  claim a recently married child, it's still the newlywed's decision whether to let them (it's not automatic). The smart  thing to do is for both couples to prepare their taxes both ways and see how the family comes out best overall, before filing. For a detailed discussion, see;

https://ttlc.intuit.com/community/taxes/discussion/can-i-claim-my-daughter-who-got-married-on-decemb...

[Jon]

Thank you for this in-depth answer sorting the aspects of QC and QR. I am pleased to provide a happy update, I talked it over with him explaining why she wouldn't be claimable, and he did not know about the income threshold of $4300. He won't be looking to claim her as a dependent, so all is sorted. 
Thank you both, Bsch4477 and Hal_Al for the great answers.

[Opus 17]

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@Jon  wrote:

Thank you for this in-depth answer sorting the aspects of QC and QR. I am pleased to provide a happy update, I talked it over with him explaining why she wouldn't be claimable, and he did not know about the income threshold of $4300. He won't be looking to claim her as a dependent, so all is sorted. 
Thank you both, Bsch4477 and Hal_Al for the great answers.

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Just to clarify for all:

1. If your wife decides to file a joint return with you, that immediately preludes anyone from claiming her as a dependent**, even if she otherwise qualifies.  

a. **Unless the only reason she files a joint tax return is to claim a refund of withholding, and neither she nor her spouses owes any tax or claims any credits or deductions.  (This would be an unusual and rare situation but I need to point it out or someone will nitpick me.)

2. Your wife does not qualify to be claimed as a dependent in any case, based on her age, lack of student status, and income.  

Note that, even if your father-in-law had not acquiesced, you would have been able to file MFJ and claim the AOTC and anything else.  Your wife's decision to file a joint return overrides everything else.  You might have been blocked from e-filing, depending on who filed first, but you could mail your return and claim all the credits you are entitled to.   The IRS would eventually have recalculated your father-in-law's tax return and sent him a bill.