Gross Income Dependency Test

[wsbjr]

For purposes of the gross income test for Dependency, is a net capital loss deducted from otherwise taxable income to determine if the threshold has been met?

[Grumpy]

No. The test is gross income not "adjusted gross income".

[wsbjr]

That was my first thought, but when you review the 1040 the Capital Loss is determined BEFORE your deductions from Gross Income to arive at AGI. That is where I am now not as confident as I once was.

[Grumpy]

Good point. I was too hasty in using "adjusted gross income" as a comparison.

Nevertheless, reading the definition of gross income, for this test, in Pub 501 still leads me to believe that the capital loss carryover should not be taken into account in this case. While the pub does not specifically mention capital loss carryover, it does state that gross income includes, for example, gross rents without taking certain expenses such as taxes and repairs into account - also that a partner's share of the gross, not net, income will be included.

I could well be wrong. Hopefully someone more knowledgeable will respond.

[erchess]

Re Read

TTB pg 3-18 in the right hand column under the heading of Gross Income. What the wording says to me is that Gross Income for purposes of the dependency test includes all taxable income except for certain exclusions that are specifically allowed and that net capital losses are not one of those specifically allowed exclusions.

Now it's always possible that TTB is mistaken or that there is another interpretation of the tax code that could be made. You could check other books or if you belong to a professional association such as NATP or NAEA you could ask its research department for an answer. If you're really made of money you could pay a Tax Attorney for an opinion. I would however tread carefully. If you take a position on a tax return that would have less than an even chance of being upheld if it were litigated in court, the IRS can impose a financial penalty on you and if you have any title such as CPA or EA this and your right to do taxes for money could be suspended or revoked..

[wsbjr]

Thanks for the comment. I actually looked at the reference in the TTB on 3-18, but didn't see anything that specifically mentioned Capital Loss deduction, although it does indicate "taxable income before adjustments and deductions". I could perhaps use that to infer that it answers the question, but I may do a bit more research to see if there is specific answer related to the cap loss.

[jainen]

part of the calculation

>>I may do a bit more research to see if there is specific answer related to the cap loss.<<

Don't bother. Capital loss isn't discussed anywhere because it is not part of the calculation.