Tax Information for Caregivers of Elderly Parents
The US tax code recognizes that caregiving for aging parents can involve significant financial expense and makes allowance for this. When filing your federal tax return, you may be able to claim one or both parents as your dependents, claim medical expenses you’ve paid on their behalf, and otherwise reduce the financial burden of caring for those you love.
Read this guide for answers to five common questions about income taxes and parental care. Although these tax questions refer specifically to taxpayers’ mothers and fathers, the answers apply also to dependent grandparents, stepparents and in-laws.
1. Can I claim my father as a dependent if he lives in my home and I provide for his care?
You are eligible to claim a parent as a dependent on your tax return provided that all of the following conditions are met:
· You are not another taxpayer’s dependent.
· Your father does not file a joint return.
· Your father is a US citizen, a US national, or a resident of the US, Canada or Mexico.
· You paid for more than 50% of your father’s support during the tax year in question.
· Your father’s gross income is less than the amount exempted.
You could also claim your parent as a dependent given other housing situations. For example, if your father were to return to his own home or move to a nursing home, you could still claim him as a dependent if the above criteria held true.
2. Can I file as head of household if my mother lives with me?
Firstly, for those who are new to the concept, you would want to file as head of household because when compared with filing under the “single” status, filing as head of household allows you the benefits of a higher standard deduction and lower tax rates. For further information on this see IRS Publication 17 about personal income tax.
The answer to the question is yes – in fact, even if your mother resided elsewhere, you might still be able to file as head of household. These are the three main criteria that apply:
· You must be able to claim a dependency exemption for your mother.
· You must have paid for more than 50% of the cost of keeping up the home in which your mother resides.
· You must be unmarried or “considered unmarried” on the last day of the tax year.
The IRS term “considered unmarried” refers to people who are technically married but may be considered unmarried for tax purposes if they are legally separated or have been living apart for at least the last six months of the tax year. People in domestic partnerships are also considered unmarried in federal tax returns.
3. I modified my home to accommodate my mother’s wheelchair – can I claim the renovation costs as a medical expense?
Home modifications made for medical reasons can be claimed as a deduction, provided that your mother was your dependent at the time you made the changes or paid the expense. The amount you may claim as a medical expense however must be offset by any increase in your home value that resulted from the changes made. After that, the total amount that you deduct for medical expenses must be reduced by 7.5% of your adjusted gross income. The same goes for other medical expenses you might pay for your parents – you can deduct them but only after applying the 7.5% reduction.
You can find further information about medical and dental expenses in IRS Publication 502.
4. My mother signed her home over to me – how should we report this transaction on our federal tax returns?
You will not owe tax for receiving the home from your mother. Assuming that the home is valued at more than the $13,000 gift tax exclusion for the year 2011, your mother will need to file the gift tax paperwork titled IRS Form 709. She will not owe any gift tax unless the home’s value exceeds her lifetime gift tax exemption of $5,000,000. If the home is valued at more than $1,000,000 she’ll also need Form 709 to report generation-skipping transfer taxes.
You can find further details about gift taxes and generation-skipping transfer taxes in IRS Publication 950.
5. Does the Child and Dependent Care Credit apply to elder care?
Yes – the Child and Dependent Care Credit (sometimes referred to as the Elderly Dependent Care Tax Credit) can help offset the cost of home care or adult day care, thus enabling you, as a taxpayer, to work outside of the home or seek employment.
IRS Publication 926 describes your tax responsibilities as a household employer.
Conclusion
Expenses associated with elder care can often be reduced through tax exemptions and credits. Claiming your parent as a dependent, filing as head of household and claiming credit for caregiving assistance are some options to consider when filing your federal tax return.
About the Author :Bob Goren is an accountant and independent advisor on filing the US federal tax return.
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