You and the mom should agree that only one of you provided the majority support. Don't both claim her and have it come back to you.
It also may be a personal thing, where mom may not want her child's exemption anywhere but with her.
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Since your sister is her actual parent, you can only claim her as a dependent if your sister agrees to not do so. If you both do it, you will lose. But since the child lived with you more than half of the year, and it is your niece, you can claim her as a qualifying child and everything that comes with such as Head of Household. But a non-parent is only allowed to do this if the parent that the child also lives with agrees to not claim the child.
Your sister is entitled to the deduction as the parent. She can release the deduction to you if you qualify as a qualifying relative. You both can not claim her in the same year.
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