TAX TIP No. 7
Tax help in caring for your aging parent
They took care of you for years. Now
it's your turn.
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.
Despite the qualification obstacles, it
doesn't hurt to explore whether you can claim your parent
as a dependent. If you and your parent meet IRS requirements,
you'll be able to claim an added personal exemption
on your income tax return. This filing season, each
exemption allows you to reduce your taxable income by
Then there are possible deductions and
credits. If you pay medical expenses for a dependent
parent, you may be able to deduct some of those costs.
Hire a caregiver to help you out and a credit could
cut your tax bill a bit more.
The highest dependency hurdle
is the amount of income your
older parent earns. A dependent
parent cannot make more than
the exemption amount. This
is that $3,500 mentioned earlier.
(Here's where kids get a break.
This is not a test for a young
dependent under the new uniform
definition of a qualifying
The income barrier represents taxable
income, notes John W. Roth, a federal tax analyst with
CCH Incorporated, a national tax and business-law publisher.
"Social Security normally is excludable,
but if they have other income, which in many cases means
interest and dividends, some is taxable," Roth
says. "So you want to start with that first in
determining if the parent meets the income test.
"It's amazing how that generation
has invested in stocks, bonds, saving accounts and how
quickly it can add up," says Roth. "And it's
not even market-based income. If you have 10 accounts
with $10,000 to $25,000 each earning even just 2.5 percent
interest, it adds up."
Such disciplined saving habits mean that
many adult children cannot claim mom or dad as a dependent.
If, however, you and your parent meet the income standard,
the next consideration is how much support you provide.
for more than half
To be deemed a dependent for tax purposes, your parent
must get more than half of his or her support from you.
"When the 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.
"Say mom doesn't have $3,500 taxable
income, but gets $15,000 in Social Security and uses
it to pay for some medicine and buy clothes. In that
case, your contribution to her support may not come
up to half."
Updated: Jan. 13, 2009