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Informed Investor: Tax Filing Status Issues - Part II

This second of two columns discussing issues associated with tax filing options examines the head of household filing option, including prerequisites for filing as head of household. These include being single or considered unmarried, paying at least half of the cost of maintaining one’s home, and claiming at least one tax dependent.


This second of two columns discussing tax filing status issues examines issues associated with the head of household filing status. In order to file an individual’s income tax return as head of household for 2015, one prerequisite is that the individual must have been unmarried or considered unmarried as of Dec. 31, 2015. This is explained in more detail below.

There are additional requirements to file as head of household. An individual who wants to file as head of household for 2015 must have paid more than 50 percent of maintaining his or her home during 2015. The following chart summarizes the costs of renting or owning a home during the year:

 Expense

 

 

 Individual Paid

 

 

 Total Cost

 

 

(1) Real Estate Taxes
(2) Mortgage Interest
(3) Homeowner Insurance
(4) Rent
(5) Renter Insurance
(6) Utilities
(7) Repairs and Maintenance
(8) Other Household Expenses
                Total

Percentage of Expense
Paid by Individual (A÷B)

 

 

 

 

 

----------------------
$(A)

 

 

 

 

 

---------------
$(B)

 

 

 

Another requirement for filing as head of household for 2015 is that an individual’s home must have been the principal residence for more than half of the year (more than 182 days) of either the individual’s qualifying child or qualifying relative. With respect to a qualifying child (son or daughter, or grandchild who lived with the grandparent more than half of the year and meets other tests), the child has to be unmarried. The child could be living away from home while attending a college or university.

A qualifying relative (other than a parent) must be claimed as a tax dependent for the individual to file as a head of household. A child does not have to live in the parent’s home for the child to qualify as head of household by claiming the parent as a tax dependent. A child can qualify by paying more than half the cost of maintaining the parent’s home. The home must be the parent’s main residence for the entire year. Note that a child who pays more than half the cost of keeping a parent in an assisted living or nursing home facility is considered as keeping up a main home. The parent must be the child’s tax dependent (but not under a multiple support agreement) for the child to file as head of household.

If a qualifying child or qualifying relative was born or died during 2015, then the requirement that the individual’s home was the principal residence for more than half of the year for the qualifying child or qualifying relative does not apply. The requirement is met if the individual provides more than half of the cost of the deceased’s residence for the period the deceased was alive during 2015.

A married individual who is a U.S. citizen or resident can file as head of household for 2015 if all of the following tests are met: (1) The individual files a separate return and paid more than half the cost of maintaining his or her home for 2015; (2) the individual’s spouse did not live in the home during the last six months of 2015; and (3) the home was the main home for more than half of 2015 of the individual’s child, stepchild, adopted or foster child. The child must be a tax dependent, or would be a tax dependent except that the parent released the dependency exemption to the noncustodial parent.

It is important for those individuals whose tax filing status may have changed for 2015 as a result of a life event to consider the head of household filing status. This is particularly important for an individual who may have filed as single or as married filing separately before 2015. Note that for the same amount of taxable income, the federal income tax rates are higher for single or married filing separately compared to the head of household tax rates. Two examples illustrate:

Example 1. Julie and Sam divorced in May 2015. They have two children. Under the divorce agreement, Julie and Sam have joint custody and claim the exemption for one child. Both Julie and Sam paid more than half the cost of maintaining a home for the rest of 2015. They are both eligible to file as head of household for 2015.

Example 2. Claudia, single and never married, supports her mother. Until 2015, Claudia’s mother lived alone and was able to pay her rent. In February 2015, Claudia’s mother went to a nursing home and depleted her savings. Claudia pays for her mother’s nursing home care. Claudia can file as head of household for 2015.

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