Can I Deduct Payments Made for Caring for Elderly Parents?
Can I Deduct Payments Made for Caring for Elderly Parents?. According to the April 2004 study "Caregiving in the U.S." and conducted by AARP and the National Alliance for Caregiving and funded by MetLife, approximately 22 million households care for an aging relative or friend. Caregivers might provide direct personal care for disabled parents, give financial assistance, provide a home for an aging parent or perhaps a combination of all. It can be a relief to discover some of the expenses you cover for your parents might qualify for a tax credit or deduction.
The first step is to determine if you can claim your parent as a dependent on your taxes. If your parent receives Social Security payments, those typically aren't included when calculating his income. However, if your parent has a part-time job, investments or savings that pay out dividends, she must earn below the annual exemption amount -- $3,650 as of 2011 -- to qualify as your dependent. You must also provide more than 50 percent of her support.
Your qualifying relative doesn't have to live with you for you to claim some tax deductions. If your parent lives in a nursing home, or in her own home, you can still claim her as a dependent as long as she meets all the requirements to be a dependent, and you provide more than 50 percent of her support, including food, medication, housing expenses and transportation. You can also claim the expenses if you remodel an aging parent's home but only if it is to equip it for disability. For example, installing ramps and bars for a relative in a wheelchair would qualify, but painting the exterior would not.
Medical Expenses and Reimbursement Accounts
The Internal Revenue Service will allow you to deduct up to 7.5 percent of your parents' medical expenses as of this article's publication, provided you paid for them. This is applicable even if your parent fails to qualify as your dependent otherwise. If your parent is a qualifying dependent, you may also use a Flexible Spending Account or other reimbursement health account to cover her medical and dependent care needs throughout the year. These funds are generally contributed pretax.
Dependent Care Credit
You might be eligible for a dependent care credit if you pay someone to look after your elderly parent while you work or look for work. Use IRS Form 2441 to determine if you are eligible to claim this credit. Those qualifying for the credit might be entitled to up to 35 percent of the annual dependent care expenses. This credit doesn't apply if your parent receives care in a nursing home or other care facility.
- IRS.gov: Publication 503 Child and Dependent Care Expenses
- IRS.gov: Instructions for Form 2441
- Bankrate.com; Tax Help In Caring for an Aging Parent; Kay Bell
- "AgingCare.com; Tax Tips for Caregivers: Claiming a Parent as a Dependent; June A. Schroeder
- IRS.gov: Publication 501 Exemptions, Standard Deduction, and Filing Information
- "Caregiving in the U.S."; National Alliance for Caregiving and AARP; April 2004