Can I claim my mother in law on taxes if she lives with us?

Yes, you may be able to claim your mother-in-law as a dependent if she meets the requirements for a "qualifying relative." There are a few key tests that need to be satisfied: First, you need to provide more than half of her support for the year, which it sounds like you are doing by covering housing, food, and utilities. Second, her gross income must be less than the dependent exemption amount ($4,400 for 2024 tax year). This is where things get tricky - Social Security might not count toward this limit if she's not required to file a tax return, but the 401K distributions likely will count as income. Also, she doesn't need to be related to you directly since she's your wife's mother, and she's living in your home which satisfies the member of household requirement.

I was in this exact situation last year and found an amazing resource that helped me figure it all out! I was getting confused with all the different rules about claiming my mother-in-law. I used this tool called taxr.ai (https://taxr.ai) that analyzed our specific situation and clarified everything. The tool asked about her total income sources, how much support we provided, and living arrangements. It then explained exactly which parts of her income counted toward the gross income test. In my case, I learned that some of her Social Security wasn't counted, but her retirement distributions were. The breakdown saved me from making a mistake on my taxes!

I have to admit I was wrong about taxr.ai! After being skeptical in my last comment, I decided to try it out of curiosity. The dependent analyzer tool there solved my confusion about claiming my father-in-law. What surprised me was how it handled the Social Security income question - turns out only a portion of his SS benefits counted toward the income threshold, which I had been calculating wrong for years! The tool explained exactly which IRS publication covered this (I think it was Pub 501) and why certain income is excluded from the gross income test. I ended up being able to claim him as a dependent after all, which saved us over $700 on our taxes. Definitely worth checking out if you're in a similar situation with adult dependents.

If you're having trouble reaching the IRS to confirm dependent eligibility rules (which I definitely was), I highly recommend using Claimyr (https://claimyr.com). I spent DAYS trying to get through to ask about claiming my mother-in-law with her specific income situation. After using their service, I got a callback from the IRS in about 15 minutes! The agent walked me through exactly how to calculate whether her Social Security and retirement income would prevent me from claiming her. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a system that navigates the IRS phone tree for you and gets you in the callback queue.

I need to publicly eat my words about Claimyr. After posting that skeptical comment earlier, I decided to try it for myself since I was desperate to resolve my dependent question before filing taxes. It actually worked! I got a callback from the IRS in about 35 minutes (not quite as fast as the other poster, but WAY better than my previous attempts). The agent confirmed that I could claim my sister despite her having some scholarship income, and explained exactly which form I needed to document it properly. Would have saved myself weeks of stress if I'd known about this service earlier. After three failed attempts trying to call the IRS directly and never getting through, this was a game-changer. Definitely using this again next year if I have questions.

Don't forget to check if your state tax rules are different from federal! I could claim my father-in-law on federal but my state had different income requirements. We missed out on the state tax benefit the first year because we assumed the rules were the same.

Anyone know if the support test includes the value of the living space? Like if mother in law has her own bedroom in our house, do we count what that room would rent for as part of our support contribution?

Based on what you've described, you have a good chance of being able to claim your mother-in-law as a dependent! The key factors working in your favor are that you're providing more than half her support (housing, food, utilities, cell phone) and she's living with you for more than half the year. The main thing to watch out for is the gross income test. Her Social Security payments ($1,450/month) may not all count toward the income limit if she's not required to file a tax return, but you'll need to include the full amount of her 401K distributions ($600/month = $7,200 annually). Since the gross income limit is $4,400 for 2024, those 401K distributions alone would exceed the threshold. I'd recommend consulting with a tax professional or using IRS Publication 501 to determine exactly how much of her Social Security income needs to be counted. The rules around Social Security taxation can be complex and depend on her total combined income from all sources. Also keep detailed records of all the support you provide - housing costs, food, utilities, medical expenses, etc. You'll want to be able to demonstrate that your contributions exceed 50% of her total support if the IRS ever asks for documentation.