claiming spouse's exemption

[stolencrumbs]

I am wondering if I am able to claim my spouse's personal exemption. We are married filing separately. She has no gross income and cannot be claimed as a dependent by anyone else. She did file a return (reporting no income.) The IRS seems to say this disqualifies me from taking her exemption, since the instructions state "if your spouse had no gross income, is not filing a tax return and cannot be considered the dependent of another taxpayer." 

But there are past bulletins that say only that the spouse cannot file a joint return. "If you and your spouse file separate returns, you may claim the exemption for your spouse only if he or she had no gross income, is not filing a joint return and was not the dependent of another taxpayer." https://www.irs.gov/newsroom/important-facts-about-dependents-and-exemptions. 

So if my spouse filed as MFS, but had no gross income and does not qualify as anyone's dependent, does this preclude me from claiming her personal exemption? (Secondarily, if it does, why? Why does a spouse filing make a difference if the other two conditions are met?)

[Carl]

You are confusing two completely separate rules. First, a married person can not be claimed as a dependent on *ANY* return. Now there are exceptions, but those exceptions do not under any circumstances apply to you as the spouse. So under no circumstances can *YOU* claim your spouse as a dependent. There are no exceptions.

Is there some reason you are *NOT* filing a joint return?

[stolencrumbs]

Thanks Carl. I'm not sure what I'm confusing. I understand that a spouse cannot be claimed as a dependent. There do seem to be circumstances where one can claim their spouse's personal exemption. 

Here's the relevant part from the 1040 instructions: 

"Check the box on line 6b if either of the following applies.

1. Your filing status is married filing jointly and your spouse can't be claimed as a dependent on another person's return.

2. You were married at the end of 2017, your filing status is married filing separately or head of household, and both of the following apply. a. Your spouse had no income and isn't filing a return. b. Your spouse can't be claimed as a dependent on another person's return."

So (2) is the relevant part for me. My status is MFS, my spouse had no income, and my spouse can't be claimed as a dependent on another's person's return. My question is about the second part of 2a--that "your spouse isn't filing a return." My spouse did file a return. According to the instructions, that seems to indicate that I cannot claim the exemption for my spouse. 

But this IRS publication says something different. It says:

"Personal exemptions.  You usually may claim one exemption for yourself on your tax return. You also can claim one for your spouse if you are married and file a joint return. If you and your spouse file separate returns, you may claim the exemption for your spouse only if he or she had no gross income, is not filing a joint return and was not the dependent of another taxpayer."

This says "is not filing a joint return" instead of "is not filing a return." I'm wondering about the discrepancy. It's my understanding that if my spouse had not filed a return at all, I would be able to take the personal exemption. I'm not sure if I can take it if she filed as MFS. Under the first quote above, it seems to preclude me from taking the exemption. Under the second quote above, it does not. 

We file separately because of student loan implications. The tax savings from filing jointly don't outweigh what the increase in student loan payments would be. 

[Carl]

You are confusing "personal exemption" with the "standard deduction".

For 2017 the standard deduction for each tax filer is $6,050. Additionally each tax filer gets a personal exemption of $4,050 on top of that. So I think if you just re-read the information you have, understanding the difference, that will clear things up better for you, than I can.

Do understand that for a married couple to file MFS, is always more costly tax-wise. When a married couple files separate returns, they both automatically disqualify themselves for deductions and credits they would otherwise qualify for if they filed a joint return.

It does not matter that only one of you had income for the tax year either. It is still better to file a joint return.

We file separately because of student loan implications.

Ah I see. But I would suggest you test it out by working it both ways to see which is better. Generally whatever you save on lower loan payments, you pay for in lost tax deductions. So you can pay six of one, or half dozen of the other - whichever you prefer.  But I would think you would want to get that student loan gorilla off your back as soon as possible, by getting it paid off as fast as possible. Filing separate still costs you, and you can't deduct what you pay the IRS instead of the lender, from *anything*.

[stolencrumbs]

I promise I'm not trying to be dense here, but I'm not seeing my confusion. I get the difference between the standard deduction and personal exemptions. I am talking exclusively about the personal exemption, which is what the quotes above are about. The instructions are explicitly addressing when one can take the personal exemption for a spouse. I'm just trying to figure out if I meet those conditions, given the discrepancy in the criteria listed in the two documents. 

I have run the numbers both ways, and while we lose pretty substantially on the tax side, it's not as much as we'd lose paying the loans. My spouse is in the public service loan forgiveness program. This is the first year she has not worked. The quickest way to get the loans off our back is for her to work in public service for another three years. 

[Carl]

From what I see in this thread, you say your spouse has no income at all for 2017, and therefore will not be filing a return at all, correct? Then all the conditions combined apply to you.

You were married at the end of 2017, your filing status is married filing separately or head of household,

This is true for you, since you're filing MFS

and both of the following apply. a. Your spouse had no income and isn't filing a return.

Yep, she has no income and is not filing a return.

b. Your spouse can't be claimed as a dependent on another person's return."

Yep, this is true too. Your spouse can't be claimed on anyone else's return.

 If you and your spouse file separate returns,

The above is a bit oxy-moronic in it's wording, but still true for you.

you may claim the exemption for your spouse only if he or she had no gross income,

The above is true.

is not filing a joint return

The above is true.

and was not the dependent of another taxpayer."

and finally, that is true.

When it comes to IRS pubs, you have to interpret them "literally". When one starts reading between the lines that which is not there, it's easy to get confused. Add to that the oxy-moronic wording that can tend to make some things a "grey area" as evidenced by what you point out above, and it can be a real challenge to do that "literal" interpretation.

 I find that by breaking it down to individual items as I did above, it makes it much easier to reach a conclusion that even a tax court would have a hard time disagreeing with, lord forbid should it ever come to that. Generally when you have a "grey area" like the one you point out, the tax court tends to side with the tax payer (that's you) and then the IRS has to revise their publication to provide the necessary clarification for the future. Things like this are happening all the time.

[stolencrumbs]

No, she *did* file a return showing zero income. I'm not really sure why, but that ship has sailed. She filed as married filing separately. That's why the discrepancy between the two seems to matter. She did file a return, but not a joint return. 

I agree that the second one is oxymoronic. The literal interpretation of the first would seem to indicate i cannot take the exemption. So perhaps I should just go with that. I still don't understand why it would matter that she filed a return. I get why it would matter if she filed a joint return. I don't get why it matters if she files a separate one showing no income. But that does seem to be the literal interpretation in the instructions. I can't find any further update, and the second one above is from 2013. 

[Carl]

Actually, she didn't file a return. The IRS does not process zero income returns. They go straight to the shredder. They're not going to waste their time processing nothing.

[stolencrumbs]

Ahh. Good to know. That makes sense.