Claiming Mother as a Dependent & Capital Gains

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Jubilado Feliz
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Claiming Mother as a Dependent & Capital Gains

Post by Jubilado Feliz » Sun May 02, 2010 11:33 am

I am planning to claim my mother as a dependent next year. She lives in Mexico now but due to personal reasons she has to move with me. She has no source of income except gains from a brokerage account. Her balance is about $100K earning about $6K a year in Capital Gains (edit: replaced interest with capital gains).

I will be paying for her expenses to let the interest to compound and grow her investment.

Will the capital gains be considered income, therefore she is not eligible to be claimed as a dependent?

Thanks
Last edited by Jubilado Feliz on Sun May 02, 2010 12:50 pm, edited 3 times in total.

jebmke
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Re: Claiming Mother as a Dependent & Capital Gains

Post by jebmke » Sun May 02, 2010 11:59 am

Jubilado Feliz wrote:I am planning to claim my mother as a dependent next year. She lives in Mexico now but due to personal reasons she has to move with me. She has no source of income except interest from a brokerage account. Her balance is about $100K earning about $6K a year in interest.

I will be paying for her expenses to let the interest to compound and grow her savings.

Will the capital gains be considered income, therefore she is not eligible to be claimed as a dependent?

Thanks
Any realized capital gains would be considered income for her. If she has gross taxable income over $3,650 I think you may not claim her as a dependent.
When you discover that you are riding a dead horse, the best strategy is to dismount.

FoolishJumper
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Re: Claiming Mother as a Dependent & Capital Gains

Post by FoolishJumper » Sun May 02, 2010 12:04 pm

Jubilado Feliz wrote:Will the capital gains be considered income, therefore she is not eligible to be claimed as a dependent?
I assume you are aware, but you cannot claim a non-child as a dependent if their gross income is above the personal exemption, i.e. $3650 for 2009. Above that level, you cannot claim your mother as a dependent, even if you do provide over 50% of her support.

Gross income does include capital gains, but only in the year(s) she realizes them. If you want to keep her income below $3650, then she can either have gains that will not be realized or she can gift you her money, since you will be providing for her anyway.

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pjstack
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Post by pjstack » Sun May 02, 2010 12:14 pm

I reccomend the Fairmark Forum for tax related questions.

http://fairmark.com/forum/

They have knowledgable people there and will probably ask you for more details.
pjstack

Jubilado Feliz
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Re: Claiming Mother as a Dependent & Capital Gains

Post by Jubilado Feliz » Sun May 02, 2010 12:19 pm

FoolishJumper wrote:
Jubilado Feliz wrote:Will the capital gains be considered income, therefore she is not eligible to be claimed as a dependent?
I assume you are aware, but you cannot claim a non-child as a dependent if their gross income is above the personal exemption, i.e. $3650 for 2009. Above that level, you cannot claim your mother as a dependent, even if you do provide over 50% of her support.

Gross income does include capital gains, but only in the year(s) she realizes them. If you want to keep her income below $3650, then she can either have gains that will not be realized or she can gift you her money, since you will be providing for her anyway.
I understand that as long as I don't rebalance her account (sell/buy commodities), then I can claim her since she will not realize gains.

But how about if I decide to rebalance and reinvest the gains (no withdrawals) is that still considered realized capital gains if the funds are depsoited in the same brokerage account?

As far as the gift part, not sure I understand, if she donates the gains to me then that's not considered her earned income?

sscritic
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Post by sscritic » Sun May 02, 2010 12:29 pm

In your original post, you mentioned $6,000 in interest.
She has no source of income except interest from a brokerage account. Her balance is about $100K earning about $6K a year in interest.
Interest is taxable income to her.
What is her expected income from interest?
What is her expected income from capital gains?
What is her expected income from dividends?
What is her expected income from employment? (I assume zero)

Jubilado Feliz
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Post by Jubilado Feliz » Sun May 02, 2010 12:37 pm

sscritic wrote:In your original post, you mentioned $6,000 in interest.
She has no source of income except interest from a brokerage account. Her balance is about $100K earning about $6K a year in interest.
Interest is taxable income to her.
What is her expected income from interest? Sorry, I meant capital gains, no interest.
What is her expected income from capital gains? Approx $6K depending on market conditions
What is her expected income from dividends? Her portfolio is mostly in growth equities so $0 or less than $1K.
What is her expected income from employment? (I assume zero) Yes, zero

livesoft
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Re: Claiming Mother as a Dependent & Capital Gains

Post by livesoft » Sun May 02, 2010 12:39 pm

Jubilado Feliz wrote:As far as the gift part, not sure I understand, if she donates the gains to me then that's not considered her earned income?
I understood that she would give you all her assets including the stuff in the brokerage account. Thus, once you owned them, they would be your cap gains if you sold to realize the gains.

Jubilado Feliz
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Re: Claiming Mother as a Dependent & Capital Gains

Post by Jubilado Feliz » Sun May 02, 2010 12:45 pm

livesoft wrote:
Jubilado Feliz wrote:As far as the gift part, not sure I understand, if she donates the gains to me then that's not considered her earned income?
I understood that she would give you all her assets including the stuff in the brokerage account. Thus, once you owned them, they would be your cap gains if you sold to realize the gains.
No, I will just manage her portfolio. And I will pay for her living expenses. Idea is to invest the $100K and not touch the principal and gains until doubling her money or I am no longer able to support her.

ickeal
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Re: Claiming Mother as a Dependent & Capital Gains

Post by ickeal » Sun May 02, 2010 1:18 pm

Jubilado Feliz wrote:Her balance is about $100K earning about $6K a year in Capital Gains.
Is this expected capital gains distribution from a mutual fund?

Or is this unrealized capital gains?

jebmke
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Post by jebmke » Sun May 02, 2010 1:31 pm

But how about if I decide to rebalance and reinvest the gains (no withdrawals) is that still considered realized capital gains if the funds are depsoited in the same brokerage account?
Yes
When you discover that you are riding a dead horse, the best strategy is to dismount.

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