Renata Halvorsen wants to claim her unmarried adult aunt, who lived with Renata for all of 2024 and met every dependency test except the gross income test, as a qualifying relative. The gross income test is satisfied only if the aunt's gross income for the year is less than 5,050 dollars. During 2024 the aunt received 6,000 dollars of gross rents from a small rental property, paid 1,500 dollars of deductible expenses on it, collected 5,000 dollars of Social Security benefits that were not taxable to her, and earned 800 dollars of tax-exempt municipal bond interest. What is the aunt's gross income for this test, and does she meet it?
- AHer gross income is 4,500 dollars, so she meets the gross income test.
- BHer gross income is 6,000 dollars, so she does not meet the gross income test. Correct
- CHer gross income is 6,800 dollars, so she does not meet the gross income test.
- DHer gross income is 9,500 dollars, so she does not meet the gross income test.
Why A is wrong: This wrongly nets the 1,500 dollars of expenses against the rents (6,000 minus 1,500), but rental expenses are deductions, not a reduction of gross income for this test.
Why B is correct: Gross rents are counted before deducting rental expenses, the non-taxable Social Security and tax-exempt interest are excluded, giving 6,000 dollars, which exceeds the 5,050 dollar limit.
Why C is wrong: This adds the 800 dollars of tax-exempt municipal interest to the 6,000 dollars of rents, but tax-exempt interest is excluded from gross income for this test.
Why D is wrong: This nets rents to 4,500 dollars and then adds the 5,000 dollars of non-taxable Social Security, but the benefits are excluded and rents are not netted, so both adjustments are wrong.