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The gross income test considers the dependent's taxable income. The support test considers all income, taxable and nontaxable.
Total support items include
- food, clothing, shelter, education, medical and dental care, recreation, and transportation; and
- welfare, food stamps, and housing provided .
Compare the dollar value of the support provided by the taxpayer with the total support the person received from all sources.
In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person. Tax-exempt income includes certain social security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest.
Here is an example from the IRS Pub 501
Your brother's daughter takes out a student loan of $2,500 and uses it to pay her college tuition. She is personally responsible for the loan. You provide $2,000 toward her total support. You cannot claim an exemption for her because you provide less than half of her support.
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