Millions of adult children find themselves looking after aging parents. Tax laws offer some help, as long as you and your folks meet the criteria.
The key to Internal Revenue Service assistance in caring for an elderly relative is whether you can claim the person as a dependent. Any dependent must meet certain tests. While there is a little flexibility when dealing with children, fewer exceptions are granted when the potential dependent is older.
HOW DO YOU DEDUCT? You must file a return that itemizes deductions instead of taking a standard deduction. Typically people who pay a mortgage or some other large expense will itemize their deductions.
How much can I deduct? The expenses in excess of 7.5% of your adjusted gross income will reduce your taxable income.
For who? Yourself, your spouse, your legal dependent. A Parent or other relative can be a legal dependent if they rely on you for over half their support during the tax year.
Does my aging parent need to live with me? No, but let’s consider both situations
Situation A: When the aging parent lives in your home, to reach the 50 percent-plus threshold you should take into account the fair-market room rental, food, medicine and other little support items,” says Roth. “This is where Social Security does come into play. If a parent is using benefits to pay for some of these support items, it goes into the calculation of whether you cover more than half of your parent’s support costs.” A parent may not meet the tax exemption level as far as taxable income, but gets $15,000 in Social Security and uses it to pay for some medicine and buy clothes. In that case, the adult child’s contribution may not meet the support threshold.
Situation B: When the aging parent does not live in your home. The one bit of wiggle room here is that your parent doesn’t have to live with you. When a parent is able to remain in his or her own house, in an assisted living facility or a nursing home, costs you pay for parental support at those locations count toward meeting the IRS requirement.
What’s deductible? Medically necessary care and/or adaptive equipment and supplies. Keep in mind medical expenses include travel expenses to and from medical treatments, along with uninsured treatments, such as hearing aides and dentures. If more than one child participates in the financial support of the parent, some families rotate the deduction to a different child each year. Cooking, shopping and house cleaning are not deductible. If there is a live-in or part-time housekeeper or caregiver, a percentage of her salary can be considered a deductible expense.
Below is the IRS Excerpt that describes the type of care that is deductible:
IRS Excerpt: You can include in medical expenses wages and other amounts you pay for nursing services. The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient’s condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in your home or another care facility. Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses.
You can also include in medical expenses part of the amount you pay for that attendant’s meals. Divide the food expense among the household members to find the cost of the attendant’s food. Then divide that cost in the same manner as in the preceding paragraph. If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant.
Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit.
We’ve had clients call us saying they had no idea this was an option but after showing this article to their tax preparer, found that is saved them a substantial amount of money and most everything their loved one needed was able to be claimed. Hope this helps you too!
Our recommendation: email this link to your accountant and discuss
Relevant IRS Publications: Publication 502 and Publication 554
We hope this was helpful. If you have any questions or if you know of a senior that could benefit from our vast array of home care services, please call us at 212-614-8057 or email us at manhattan@homeinstead.com. We accept all types of long term care insurance as payment
Best!
Christian and Claudia
