If you’re caring for elderly parents, there are three big tax breaks you might be eligible for. We’ve laid everything out below.
Always remember to consult with a tax professional before filing your taxes though. The tips below are for informational purposes and cannot replace the advice of a tax professional.
3 Tax Deductions When Caring for Elderly Parents
Tax Break #1: Personal Exemption
When most people hear the word “dependent”, they picture children under the age of 18, but you can also claim elderly parents as dependents. There are a few requirements though. Here are the criteria that must be met:
1. The person you are claiming as a dependent must be related to you. In-laws and step parents are also allowed. However, in order to claim a foster parent, there’s a requirement that they must live with you for one year as a member of your household. Otherwise, it is not necessary for your parent to live with you in order to qualify.
2. Your parent must be a legal US Resident.
3. Your parent must not have a gross income exceeding $4,000 for the year. This does not include Social Security or other types of non-taxable income.
4. You must provide more than half of the financial support for your elderly parent throughout the year. If they live in your home, you can consider the fair market value of the rent as a part of the support they receive (you can do this even if you aren’t actually collecting rent from them). You can also include the money spent providing food, clothing, medical and dental care, entertainment, recreation, transportation and basic needs. Also, if you don’t single-handedly pay for more than half of your parent’s support for the year, but you and your siblings combined pay more than half, it still may be possible to claim your parent as your dependent as long as you contribute at least 10%.
Remember to always speak to a tax professional when determining dependent eligibility as there are many nuances within the tax code.
Tax Break #2: Dependent Care Tax Credit
If you paid somebody else to help care for your elderly parents while you worked or attempted to find work, you may be eligible to claim the dependent care credit. The key point here is that this credit is intended to be used for costs associated with work only. It cannot include caregiver costs that you paid while on vacation, taking care of errands, or enjoying leisure time.
The primary requirements are that you must have earned income throughout the year, and you must be able to claim your parent as a dependent (see above).
If you qualify, you are allowed to claim up to 35% of the expenses that you paid toward each parent’s care, up to a maximum of $3,000 in expenses per parent. So if you paid for a caregiver to help both of your parents, you could claim up to $6,000 in paid dependent care expenses.
Note: 35% is the highest percentage allowed. This number may be lower for you, based on your adjusted gross income that year.
You can find more details on the IRS website.
Also since this is a tax credit, it will directly reduce the taxes you owe by the same amount. This behaves differently than a tax deduction, which simply lowers your total taxable income.
Tax Break #3: Medical Expense Deduction
Even if you cannot claim them as a dependent, it’s possible you can still deduct medical expenses you paid while caring for your elderly parents.
But to do this, the reason you were unable to claim them as a dependent must be income-based. So, going back to the requirements in Tax Break #1, you still must have paid for more than half of your parent’s total living expenses, and they still must be a legal US resident).
If you fit these requirements, the IRS will allow you to claim the amount you paid for medical care when itemizing your deductions on your tax return.
The expenses you can itemize include, hospital stays, dental care, long-term care, prescription drugs and more. Note that you must itemize your deductions to use this tax break.
As a final reminder, always consult a tax professional when filing your return. These tax tips are designed to help you when caring for elderly parents, but are for information purposes and not intended to replace professional tax advice.