Qualifying Relative for 2018-2025

In October, the IRS issued Rev. Proc. 2017-58, which, in part, set the personal exemption amount for 2018 at $4,150. Then, in December, the TCJA amended sec. 151(d) by adding sec. 151(d)(5), which set the personal exemption amount for 2018-2025 to zero:

(5) SPECIAL RULES FOR TAXABLE YEARS 2018 THROUGH 2025.—In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) EXEMPTION AMOUNT.—The term “exemption amount” means zero.
(B) REFERENCES.—For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section.

For a taxpayer to claim a “qualifying relative” as a dependent, there are 4 tests, one of which is the gross income test. The gross income test says that the “qualifying relative’s” gross income must be less than the personal exemption amount for the year. Sec. 152(d)(1)(B).

For 2018, taxpayers can get the new $500 family tax credit for a “qualifying relative.” But suppose that for 2018, the individual who is the “qualifying relative” receives $2.00 in interest income. Since that’s more than the personal exemption amount for the year, does this mean that the taxpayer isn’t entitled to the $500 family tax credit for this individual?

What does the “REFERENCES” paragraph above mean? Does it mean that despite the reduction of the personal exemption amount for 2018 from $4,150 to zero, an individual can still receive up to $4,149 of gross income and be a “qualifying relative”?

>> For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section.

I read this as the test for gross income for qualifying relative remains unchanged. Follow the prior law!

ATSMAN, I don't understand your post. If the test for "qualifying relative" remains unchanged, are you saying that since the exemption amount for 2018-2025 is zero, and the test for "qualifying relative" remains unchanged, an individual with ANY gross income can't be a "qualifying relative"? Or are you saying that an individual with less than $4,150 of gross income can be a "qualifying relative"?

The "References" paragraph (151(d)(5)(B)) refers only to "deductions." How does that affect the new $500 family tax credit, which isn't a "deduction"?

What does the “REFERENCES” paragraph above mean? Does it mean that despite the reduction of the personal exemption amount for 2018 from $4,150 to zero, an individual can still receive up to $4,149 of gross income and be a “qualifying relative”?

I think it means exactly that. The wording may be awkward but I think the intention was to say for all other purposes in this title, use the $4,150 number. There were no conforming amendments to this change - leads me to believe that was the purpose of the REFERENCES paragraph.

The footnote in the statement from the Conference Committee for §11041 of the TCJA explains the intention.

The provision also clarifies that, for purposes of taxable years in which the personal exemption is reduced to zero, this should not alter the operation of those provisions of the Code which refer to a taxpayer allowed a deduction (or an individual with respect to whom a taxpayer is allowed a deduction) under section 151. Thus, for instance, sec. 24(a) allows a credit against tax with respect to each qualifying child of the taxpayer for which the taxpayer is allowed a deduction under section 151. A qualifying child, as defined under section 152(c), remains eligible for the credit, notwithstanding that the deduction under section 151 has been reduced to zero.

Thank you, gmhksgp. I think that you nailed it.

Glad to be of help