Exemption may have one of the following meanings, depending the context of the term:
1. a deduction allowed a taxpayer because of his or her status or circumstances rather than because of specific economic costs or expenses during the taxable year. For example, a married couple having three children are allowed five personal and dependency exemptions by federal income tax laws, one for each person, on their joint return. The exemptions reduce the amount of income upon which the couple are taxed. The amount of the exemption is indexed for inflation each year; the indexed amount for 1994 is $2,450. Former IRC (check if this IRC provision is current here) §151.
2. the homestead exemption, offered in many jurisdictions, which reduces the value of real estate (usually the principal residence or domicile) that would otherwise be subject to an Ad Valorem tax.
3. the maximum alternative minimum tax exemptions for 1994 were $45,000 for a married couple filing jointly, $33,750 for a single person or a head of household, and $22,500 for a married couple filing separately. The maximum exemption for corporations is $40,000, which is phased out for alternative minimum taxable income in excess of $150,000. Former IRC (check if this IRC provision is current here) §55(d).
You can claim a personal exemption for yourself. On joint returns, a personal exemption is claimed for each spouse. the taxpayer also get an exemption for each dependent the taxpayer claim on his or her return. Each exemption reduces taxable income by $3,650 in and 2010 (and $3,700 in 2011). A rule that used to squeeze the value of exemptions for higher-income taxpayers has been repealed.
Description and Definition of Exemption
A deduction from taxable income for you, your spouse, and your qualifying dependents. Special rules apply if someone else can claim you or your spouse as a dependent.