You must have provided over half of the person's total support for the year. In order to determine whether you provided over half the person’s support, you need to take into account the following:
The person’s own funds that were used for his or her support. This includes the person’s income (including tax exempt income such as social security benefits), savings, and amounts borrowed. But for purposes of the support test, a person’s own funds are not support unless they are actually spent for support.
The amount that others provided for the person’s support, including payments from governmental welfare agencies.
The expenses for the entire household where the person you supported lived. You then divide this total by the number of persons living in the household to determine how much corresponds to the dependent you supported.
Other expenses paid for the person you supported, such as clothing, education, medical and dental expenses not reimbursed by insurance, travel, recreation and others.
If you provide your dependent with lodging, the fair rental value of the property is considered as support. If the dependent lives in his or her own home, the fair rental value of the home is considered to be support provided by the dependent. If you live rent-free in your dependent’s home, the amount of support you are contributing must be reduced by the fair rental value of the lodging provided to you.
There are two exceptions to the requirement of providing more than half the dependent’s support:
Children of divorced or separated parents, and
Multiple support agreements, in which two or more persons provide support, but no one person provides over half the total support.
In the case of children of divorced or separated parents, the parent who has custody for the greater part of the year is generally considered as the parent providing more than half the child’s support, regardless of whether that parent actually provided more than half the support.
The custodial parent may release the exemption to the noncustodial parent by signing Form 8332 or a similar statement. This statement must then be attached to the tax return of the noncustodial parent who is claiming the exemption. This provision may also be stated in a decree or agreement of divorce or separate maintenance, and in this case, copies of the appropriate section of that agreement must be attached to the noncustodial parent’s tax return.
All child care payments actually received from the noncustodial parent are considered to be used for the child’s support.
In a multiple support agreement, where no one person provides over half the support, you can claim the exemption for the dependent if you provide over 10% of the person’s support and each of the other persons providing support signs an agreement not to claim the exemption for that year. The multiple support declarations of the other persons must be attached to the tax return of the person claiming the exemption. IRS Form 2120 – Multiple Support Declaration, can be used for this purpose.