The amount you can deduct for each exemption has increased from $3,400 in 2007 to $3,500 in 2008.

You lose part of the benefit of your exemptions if your adjusted gross income is above a certain amount. For 2008, this phaseout begins at $119,975 for married persons filing separately; $159,950 for single individuals; $199,950 for heads of household; and $239,950 for married persons filing jointly or qualifying widow(er)s. However, in 2008, you can lose no more than 1/3 of the amount of your exemptions. In other words, each exemption cannot be reduced to less than $2,333.

You may be able to claim a $500 exemption if you provided housing to a person displaced by a Midwestern disaster. For more information, see Form 8914.

This chapter discusses exemptions. The following topics will be explained.

• Personal exemptions — You generally can take one for yourself and, if you are married, one for your spouse.
• Exemptions for dependents — You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. If you are entitled to claim an exemption for a dependent, that dependent cannot claim a personal exemption on his or her own tax return.
• Phaseout of exemptions — You get less of a deduction when your adjusted gross income goes above a certain amount.
• Social security number (SSN) requirement for dependents — You must list the social security number of any dependent for whom you claim an exemption.

Exemptions reduce your taxable income. Generally, you can deduct $3,500 for each exemption you claim in 2008. But, you may lose part of the dollar amount of your exemptions if your adjusted gross income is above a certain amount. See Phaseout of Exemptions, later.

How you claim an exemption on your tax return depends on which form you file.

If you file Form 1040EZ, the exemption amount is combined with the standard deduction amount and entered on line 5.

If you file Form 1040A or Form 1040, follow the instructions for the form. The total number of exemptions you can claim is the total in the box on line 6d. Also complete line 26 (Form 1040A) or line 42 (Form 1040).

There are two types of exemptions: personal exemptions and exemptions for dependents. While each is worth the same amount ($3,500 for 2008), different rules apply to each type.

You are generally allowed one exemption for yourself and, if you are married, one exemption for your spouse. These are called personal exemptions.

You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer does not actually claim you as a dependent.

Your spouse is never considered your dependent.

On a joint return you can claim one exemption for yourself and one for your spouse.

If you file a separate return, you can claim the exemption for your spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer. This is true even if the other taxpayer does not actually claim your spouse as a dependent. This is also true if your spouse is a nonresident alien.

If your spouse died during the year, you generally can claim your spouse's exemption under the rules just explained under Joint return. If you file a separate return for the year, you may be able to claim your spouse's exemption under the rules just described in Separate return.

If you remarried during the year, you cannot take an exemption for your deceased spouse.

If you are a surviving spouse without gross income and you remarry in the year your spouse died, you can be claimed as an exemption on both the final separate return of your deceased spouse and the separate return of your new spouse for that year. If you file a joint return with your new spouse, you can be claimed as an exemption only on that return.

If you obtained a final decree of divorce or separate maintenance by the end of the year, you cannot take your former spouse's exemption. This rule applies even if you provided all of your former spouse's support.