Question: Bobby and Jinger lived together all year with their child, Olivia age 6. They are not married and are trying to determine who should claim Olivia. Can Jinger claim Olivia for the earned income tax credit (EIC) and Bobby claim head of household (HOH) status for Olivia assuming they would otherwise qualify?

Answer: No, they cannot split the tax benefits for the child between them. They are both considered custodial parents for tax purposes. If Jinger claims Olivia, then, if eligible, she claims the child for everything (dependency, HOH, EIC, CTC, dependent and child care credit). Bobby must file as single because he is not claiming Olivia.

Additional information: For unmarried parents who live together where they are both the custodial parents, only one parent can claim the tax benefits for each child each year; the benefits cannot be split up. If they cannot agree on who can claim the child, then the tie-breaker rule states the parent with the higher AGI can claim the child for all the benefits if they otherwise qualify.

Question: Mary received Form W-2, Wage and Tax Statement, for tax year 2023 from her home state’s Medicaid program. The payments are for the care of her incapacitated father who she lives with in his home to provide care for him. Are these payments truly wages for which Mary has no choice but to claim as income?

Answer: No. As long as the circumstances outlined below apply, the income could be classified as difficulty of care payments.

1. The individual care provider must have the same home as the eligible person receiving care. (The caregiver must live in the home of the eligible person. The caregiver cannot provide care during the day and then go to another residence in the evening.)

   2. It must be under a state Medicaid waiver program or similar program. This allows the state to include in the state’s Medicaid program the cost of home or community-based services (other than room and board) provided to individuals who otherwise would require care in a hospital, nursing facility, or intermediate care facility (eligible individuals). Home or community-based services includes personal care services, habilitation services, and other services that are “cost effective and necessary to avoid institutionalization.

Remedies: If these circumstances represent Mary’s situation, record the amounts from the Form W-2 on Line 1a of Form 1040. Then proceed to Form 1040, Schedule 1, Line 8s, Nontaxable amount of Medicaid Waiver Payments included on Form 1040, Line 1a or Line 1d. Enter the amount from Form 1040 Line 1a or Line 1d. This will zero out the wages included on Form 1040.

For more information see IRS Notice 2014-7 and §131.

Question: Christopher was recently able to fulfill his lifelong dream by purchasing a recreational vehicle (RV) to travel in. He has decided to spend all summer touring the Midwest in his new motor home. The RV is equipped with on-board permanently mounted sleeping, cooking and bathroom facilities. He paid $200,000 of the purchase price in cash and got a loan for the remaining $100,000 and the loan was solely for the RV purchase. He will not be renting it or using it for other business purposes. Chris has no other mortgages. He otherwise itemizes his deductions and would like to know: could his RV count as a vacation home in order to deduct the interest he is paying on the loan?

Answer: Yes. A deduction is allowed for qualified residence interest (commonly called the “mortgage interest deduction”) for a taxpayer’s principal home, as well as one other additional home used as a residence during the taxable year. IRC §163(h)(3); IRC §163(h)(4)(A)(i). According to Temp. Reg. §1.163-10T, an RV is considered a residence, so long as the mobile home has sleeping, lavatory and cooking facilities. Christopher will therefore be able to deduct the interest he is paying as home mortgage interest, on Schedule A (Form 1040), Itemized Deductions.

Question: Ryan and Heather are divorced and did not live together at any time during the year. They have one child together, Kaylee, who they have shared custody and placement of. Together they provide all of Kaylee’s support. Both Ryan and Heather meet the requirements to claim Kaylee as a qualifying child, but since Ryan has her more nights during the year, he is the custodial parent. Under the terms of their divorce agreement, Ryan uses Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, to release his claim so that Heather can claim Kaylee. Ryan does not have any other dependents. Can he still claim Kaylee as a dependent for purposes of the earned income credit?

Answer: Yes. Although Ryan released his claim to Kaylee so that Heather could claim her as a dependent, this release only allows Heather to claim Kaylee for purposes of the child tax credit. It does not prevent Ryan from claiming Kaylee as a dependent for purposes of the earned income credit, the child and dependent care credit, the income exclusion for dependent care assistance benefits, or the head of household filing status, if he otherwise qualifies to claim those benefits.

Question: Donna and Chris are beneficiaries of their brother Mike’s estate. Mike passed away in July 2022, and the fiduciary set up the estate on a fiscal year ending June 30, 2023.

In September 2023, Donna and Chris received a Form K-1, Beneficiary’s Share of Income, Deductions, Credits, etc., from Mike’s estate labeled “2022.” In what tax year are Donna and Chris required to report the income from Mike’s estate?

Answer: Donna and Chris, as beneficiaries of a fiscal year estate, must include their share of the estate income in their tax returns for the tax year in which the last day of the estate’s tax year falls, which is June 30, 2023, in this case. The K-1 was prepared on 2022 forms but the form also states it could be prepared on forms for other years beginning July 1, 2022, and ending June 30, 2023.

If the tax year of the estate is a fiscal year ending on June 30, 2023, and the beneficiary’s tax year is the calendar year, the beneficiary will include in gross income for the tax year ending Dec. 31, 2023, their share of the estate’s distributable net income distributed or required to be distributed during the fiscal year ending the previous June 30.