Deducting Mom And Dad: Tax Tips For Caregivers

This post first appeared in the Miami Herald on March 4, 2012. It has been updated to reflect changes in the laws in 2015.

If you're one of the 40 million+ caregivers in the US, then you know first hand the toll it can take on you financially. 

But what you may not know that there may be some tax breaks that you can take advantage of.   Here are just a few suggestions for ways to ease the financial burden. Of course, your own accountant or elder law attorney can give you personal advice that will be most pertinent to your own situation. 

 1. Claiming your parent as a dependent.  This will enable you to reduce your own taxable income by $4,000. There are some basic criteria you must meet.

• Your parent may not file a joint tax return with a spouse, and cannot have an annual income that exceeds $3,950. While this amount typically does not include Social Security disability payments, it does include income from pension and retirement plans, or dividends from other investments.
• You (the caregiver) can not be claimed as a dependent on any other tax return. 
• You must provide at least one-half of your parent's total support. 

You can find learn more about claiming your parent as a dependent by downloading the IRS 501 Publication.

 As complicated as it seems, it becomes even more involved if the support is provided by multiple siblings. If each sibling contributes at least 10% of the overall care expenses, then you must have an agreement each year that states which sibling will take the deduction. More information on this can be found in the IRS Form 2120.  

2. Deducting the expenses for Medical Care of your parent(s).  If you provide the funds for more than 50% of either one or both parents' overall medical expenses you may be able to deduct these expenses on your tax return. Some key criteria are:

• The amount you spend must exceed 7.5% of your own adjusted gross income.
• You may only deduct expenses that are not reimbursable by medicare or private insurance and those that are outlined in the IRS Publication 503. These expenses include: transportation to medical expenses, medication expenses; home healthcare, and premiums for Long-Term Healthcare Insurance, and medical equipment. 
• The expenses must be for one who is chronically ill and whose need for care has been documented and prescribed by a physician or other health care practitioner. 

Deduction of Living Expenses  If you have a parent living with you, there are living expenses that may be deductible on your tax returns. If you renovate a room in your home to make it accessible for your parent, the costs may be deductible, but only to a limited extent. Any increased value to your home is not allowed.

The IRS allows you to claim a portion of your home if your parent lives with you. You can claim "fair rental value" and include a portion of utilities and other household expenses as well. However, if you're in a high income tax bracket the amount you are permitted to claim as a deduction decreases.  More information on this can be found in the IRS 501 Publication.

There is clearly not enough of tax relief help available to those providing help to an aging or frail parent. If you're currently a caregiver it's important to learn about potential tax breaks. Even if you don't qualify it's a good idea to keep abreast of available information because as the population ages and the number of boomer caregivers increases, we are likely to see changes in the laws that will provide relief for caregivers.

If you need help finding a financial or legal professional who is knowledgeable about these matters, email or give us a call. We can recommend individuals in south Florida.