Qualifying Relative Test, Lifetime Use

[zzz]

I’m trying to determine if I can claim my mother as a dependent, and am using this “Worksheet for Determining Support” from irs.gov:

https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

My mother and I share a house, where she has Lifetime Use, and I am one of two remaindermen, the other does not live in the house. Line (21) of the worksheet asks about the owner of the home, and I’m not clear on how to break down the values.  

Let’s assume the yearly rental value is $10,000. But, because she has “Lifetime Use”,  does the IRS consider her a partial owner based upon her age (86) and some actuarial tables?  

[ irs.gov Worksheeet for Determining Support]

…

(6)  Lodging (complete line 6a or 6b):

   (a)  Enter the total rent paid

   (b)  Enter the fair rental value of the home. If the person you supported owned the home, also include this amount in line 21

…

(21)  Enter the amount from line 2, plus the amount from line 6b if the person you supported owned the home.

[GeorgeM777 · Accepted solution]

No, the IRS would not consider your mother as a partial owner.   The IRS considers your mother the full owner of the home, since your ownership rights will not kick-in until your mother's death.   At this point you have no ownership in the home and the total fair rental value of that home is considered support contributed by your mother.  As remaindermen you are not owners. 

Therefore, the rental value of the home needs to be included on the Worksheet, or any other calculation method you use, as support provided by your mother.  Given the information you provided, if the yearly fair rental value of the home is $10,000, you would include that amount on line 6b of the Worksheet. 

As a way of background, here are the requirements for claiming your mother as a dependent.

• The person you are claiming as a dependent must be related to you. This shouldn't be a problem if you are claiming a parent (in-laws and stepparents are also allowed). Keep in mind, however, that foster parents do not count as a relative. To claim a foster parent, he or she must live with you for a year as a member of your household.
• Your parent must be a citizen or resident of the United States or a resident of Canada or Mexico.
• Your parent must not file a joint return. If your parent is married, he or she must file separately. There is an exception if your parent is filing jointly, but has no tax liability. If your parent files a joint tax return solely to get a refund, you can claim him or her as a dependent.
• Your parent must not have a gross income of $4,300 (in 2021) a year or more. Gross income does not include Social Security payments or other tax-exempt income. (For those with incomes above $25,000, some portion of Social Security income may be includable in gross income; for details, click here.)
• You must provide more than half of the support for your parent during the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. 

[Edited 02/24/22|12:00am PST]

@zzz

[zzz]

Here is some history.  Back in 2006, for a reason I can’t recall, I called the IRS and asked for the actuarial value of a joint life estate (both parents were alive). The IRS representative could not answer the question, and asked for a separate computation to be generated.  And, sure enough, an attorney from the IRS sent me a letter as follows:

 You have requested computation of the actuarial value of a joint life estate vested in life tenants 71 years of age and 72 years of age, per their nearest respective birthdays, on Feb 1, 2006.

 …

[1] Obtain the applicable mid-term rate(s) in effect for the month of February, 2006.  The applicable IRS Cumulative Bulletin indicates that the applicable rate was 5.2% during that month.

[2] Obtain the applicable factor, based on a 5.2% rate, from the IRS Publication 1457 Table R(2).  The remainder factor in this case is .43917.   The reciprocal joint life estate factor is .56083.

Now, is this actuarial computation done by the attorney only valid for certain use cases?  Do “actuarial value” and “ownership” have different meanings for my question?

Thanks.

@GeorgeM777 

[ColeenD3]

Yes. They have very different meanings. As long as your mother is alive, it is her house. These calculations in no way forward your ability to claim her as a dependent.

Life Estate and Remainder Interest Table

The life estate chart may be used whenever it is necessary to determine the value of a client's life estate interest in real property. For example, in 469 NAC 2-009.07B8 if a client gives away a life estate in real property, this may be considered a deprivation of a resource if the client is in a medical facility. To determine the value of the resource the client disposed of, use this chart.

Find the client's age in the Age column and then go to the column called Life Estate. Take the percentage listed here and multiply it by the TOTAL value of the real property. This will give you the value of the client's life estate interest.

For example, if a client has a life estate in real property and the life estate is deeded to the client's relatives within 60 months of the client entering a nursing home, this may be considered a deprivation of a resource. If the total value of the property is $40,000 and the client is 72 years old, you would take $40,000 x .57261 and the client's life estate interest was worth $22,904.40.  The remainder amount to the relatives is $17,095.60 ($40,000 x .42739 in remainder column).

The life estate tables may also be used if the owners wish to sell the property and need to know how much of the net proceeds the client should receive or if the owners wish to purchase the life estate interest from the client.