Qualifying Relative Test

• The IRS allows taxpayers to claim virtually any individual as a qualifying relative dependent provided a you and the dependent satisfy a number of tests. Since the individual is your father, you are not subject to the requirement that he reside with you. However, other tests require an evaluation of your father's level of income that is not tax-exempt as well as the percentage of financial support you provide him during the year. In addition, your father must not file a joint return with his wife, though his marriage to your mother or stepmother will not necessarily disqualify you from claiming him. If you satisfy all requirements, you are eligible to claim an exemption that reduces your taxable income in the same way a deduction does. The amount increases for inflation each year, and in 2011, for example, each dependent you claim entitles you to a $3,700 exemption.
  
  

Father's Income

• Your father only qualifies as your dependent if his gross income that is subject to income tax is less than $3,650. Your father will receive his entire Social Security income tax-free if he doesn't have other sources of income and therefore, it will not affect his eligibility to be your dependent. However, if your father earns tax-exempt income in addition to Social Security, the IRS will impose tax on the Social Security income, if the sum of the tax-exempt income plus half of his Social Security exceeds the applicable base amount for the year. If a portion of your father's Social Security is taxable, you must include that portion in gross income for purposes of evaluating the $3,650 threshold.
  
  

Support Test

• Before the IRS will allow you to claim a dependent exemption for your father, it wants to insure that you are responsible for a substantial portion of his financial support. As a result, the law requires that you provide more than 50 percent of his financial support during the year. Such financial support includes expenses for food, housing, clothing, medical and dental care, cars and other transportation and reasonable amounts for entertainment. If you are financially responsible for more than half of the total of these expenses, you will satisfy the requirements of the support test.
  
  

Multiple Support Agreements

• If you have siblings that agree to share equally in the financial burden of supporting your father, the IRS allows each sibling to take a turn claiming your father as a dependent. This occurs when collectively you and your siblings provide more than 50 percent of your father's support, but you individually don't. As long as each sibling provides more than 10 percent of your father's annual support, you can reach an agreement with them to alternate years for taking the exemption.