The Most Painful Deduction
by Bob Williams
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As we Baby Boomers have come to know all too well, at some point we may face a prospect unseen in our earlier years: taking care of an aging parent. It’s a reversal of roles that was unthinkable, but now reality.
You may now be in charge of caring for your Mom, your Dad – or even both. They may now be living with you, in their own home, or in a dedicated care facility. The exact circumstances will vary. But we’d like to pass on some information that we hope could be helpful during this time.
Making the Tough Choices
Most of the time, we advise you to consider the tax implications of an action first; this time, though, it’s different. Our experience taught us to make the decisions that are right for our parents first – the tax implications will take care of themselves. Well, almost.
In other words, let your care decisions drive your taxes here, not the other way around.
So let’s look at some possible scenarios – and what they’ll mean. In many cases, your parents are now your dependents. In the eyes of the IRS, that means you have to supply more than half of their living expenses. If you intend to claim them under the Child and Dependent Care Credit, there are other considerations as well.
The logic of this credit is to buffer some of the expenses you incurred to take care of (in this case) your parents, so you could work or look for work. To qualify for the credit, your dependent must be physically or mentally incapable of self-care and must live with you for more than half of the year.
How do you determine who is incapable of taking care of themselves? The IRS puts it this way:
“Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.”
This particular credit is capped at $3,000 for one qualifying individual or $6,000 for two or more. That means if you have both Mom and Dad living with you, the credit is maxed out at $6,000 for the tax year. The credit is for expenses paid to a care provider who is NOT your spouse or your dependent; you’ll need the provider’s Employer Identification Number (EIN) or Social Security Number for your tax return; and married couples will have to file Married Filing Jointly if claiming the credit.
Many times, caring for our aging parents means making accommodations to their physical environment. For parents living with you, that could translate into building ramps to replace stairs; special bathroom equipment such as walk-in bathtubs and special sinks; or perhaps an elevator is needed. Such improvements may be written off as direct medical expenses. If you’re considering this sort of improvement, remember to keep all your records and if possible, get a physician’s prescription or written recommendation that it be installed.
The credit requirements and a full listing of benefits are spelled out in IRS Publication 503, Child and Dependent Care Expenses.
Parents Living Independently
If your parents – or those of your spouse – still live in their own home, you may be able to claim them as dependents – but there are limitations. If you’re married, filing jointly, then parents may be listed as dependents if you supply more than half their support, even if they do not live with you. If you and your spouse file separately, however, you could not claim your spouse’s parents, and vice-versa.
These rules are spelled out completely in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Caring for our aging parents is a task few of us are truly prepared for, yet compassion and dedication will see us through the task. And hopefully, the income tax rules that are in place can give you a little peace of mind – so you can concentrate on the really important stuff.
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