Dementias, particularly Alzheimer’s, can have a substantial financial impact on the immediate and extended family. As tax season nears, it may be a good time to educate yourself about the IRS requirements to claim a loved one as a dependent. If you have paid some care costs out of your own pocket, you may be eligible for tax benefits from the Internal Revenue Service (IRS).
As you prepare your return, here are a few tips for determining your possible tax benefits. Remember, these tips are guidelines only. Tax rules are complex and change annually. It is strongly recommended that you consult with a tax advisor before submitting your return.
In order to declare your elderly relative as a dependent, you both must meet certain criteria:
- You must be related to the person. If you are caring for your parent, grandparent, stepparent or parent-in-law, you may be eligible for a caregiver tax exemption.
- The person you are caring for will have income eligibility limits. This figure will not include social security payments.
- The person you are declaring as your dependent does not need to live in your home — which means they may be living in their own home or a care facility, but you must be paying for more than 50 percent of their expenses.
If your situation meets all of the above criteria, you may be eligible to claim your relative as a dependent on your 1040 form, which can equate to a reduction of your taxable income.
If your family is dividing the duties of caring for an individual — for example, more than one sibling is contributing to the care of a parent — you may still be eligible for the tax exemption. However, only one person can declare someone as a dependent in a single year. Each sibling must provide at least 10 percent of the parent’s care, and combined the siblings must be providing for more than 50 percent of the parent’s care. Many families choose to take turns each year as to who will receive the tax exemption for caring for a relative. In this case, the person who is declaring the parent as a dependent must fill out a “Multiple Support Declaration” and submit it with their tax return.
If you are not able to declare your relative as a dependent because they earned more than the IRS allows, but you still provide more than 50 percent of their expenses, you may still be able to receive tax benefits by deducting their medical expenses on your tax return. According to IRS Form 2120, the IRS allows caregivers to deduct costs incurred from a parent’s health care, such as hospitalization, prescription drugs, dental care, and long-term services.
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Are you considering having your parent(s) move into your home? The IRS says you can claim the “fair rental value” of the home, including a reasonable allowance for the use of furniture, appliances and utilities. This is the amount you could reasonably expect to receive from a stranger for the same kind of lodging. You can find examples in the I.R.S. Publication 501 and Publication 502, which explains how to calculate these amounts.
In addition to these federal tax benefits, some states also offer tax incentives for caregivers. The AARP Foundation Tax-Aide program provides free tax preparation and counseling information. For more information, call 1-888-OUR-AARP or visit http://www.aarp.org/taxaide.
Another information source is the Alzheimer’s Association. Their website, http://www.alz.org, provides great information. This web address may be a good starting place for information: https://www.alz.org/help-support/caregiving/financial-legal-planning.
For those of us with elderly parents, an unexpected change in their medical condition can cause many unforeseen concerns. Get educated, ask questions, and be proactive in learning about tax benefits available from both federal and state governments.
When you are unsure about what deductions you are eligible for, it is always best to consult a qualified accountant or financial professional for planning and preparing your taxes.
Judson Haims is the owner of Visiting Angels Home Care in Eagle County. Contact him at 970-328-5526 or visit http://www.visitingangels.com/comtns.
