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Money December 2012

Dollar Sense

Taking Care of Mom and Dad: A Labor of Love With Possible Tax Breaks

By Teresa Ambord

If you provide your parent with regular financial support, you may be able to take a dependency exemption for him or her. In 2012, that exemption is equal to $3,800.

Taking care of our elderly parents is something that we do, just because we’re family and we love them. But an additional tax break or two wouldn’t hurt. Even if your parent does not live in the same home as you, you may be eligible for some help at tax time.

Here’s what you need to know.

If you provide your parent with regular financial support, you may be able to take a dependency exemption for him or her. In 2012, that exemption is equal to $3,800.

To qualify, the following must be true:

  • Your parent does not file a joint tax return for the year.
  • He or she must have gross income less than $3,800 in 2012. This does not include the non-taxable portion of Social Security payments.
  • You must provide more than half of your parent’s financial support. (See sidebar for details about what is and is not support.)

Important planning point! After you tally up how much you have paid versus how much your parent has paid, if you find you are borderline, it may pay for you to kick in a little extra to push yourself over the halfway point. Keep an itemized list of your support vs. your parent’s support, and attach it to your copy of tax records. For an additional exemption of $3,800 it could be well worth the effort.


What If Your Siblings Also Contribute?

If you and your siblings share the support of a parent, you may be able to set up a “multiple support agreement,” by filing an IRS Form 2120. Basically this means that although two or more of you contribute to the support of a parent, only one is allowed to take the dependency exemption. You may decide to alternate among the siblings so the others can take the benefit too. Just keep in mind that only siblings who pay more than 10% of the parent’s support can qualify. For the sake of family harmony, also put the agreement between siblings in writing.


Do You Pay Medical Expenses for Your Parent?

If you pay for at least half of your parent’s financial support, you may also be able to deduct amounts you pay for his or her unreimbursed medical expenses, by adding them to your own medical expenses. This is generally true even if your parent is not your dependent and does not live in your home.

Of course, it’s seldom a slam dunk to deduct unreimbursed medical expenses on your return, no matter who they are for, because they have to exceed 7.5 percent of your adjusted gross income. And then only the amount that actually surpasses this hurdle is deductible.

Unreimbursed expenses include your share of health insurance premiums, co-payments for doctor visits and prescription drugs, dental and vision care costs, amounts paid before insurance deductibles are covered, and medical expenses paid for your parent if you provide more than 50 percent of support. You can also include qualified long-term care insurance premiums subject to age-based limits: For individuals 51-60 the maximum amount paid for long-term care insurance that you can treat as a medical expense in 2012 is $1,310. For those 61-70, the maximum is $3,500. For those older than 70, the maximum is $4,370. You can also deduct part of the fees you pay for your parent to enter and reside in a retirement home that provides medical and nursing care. Often that is enough to push you over the threshold.


Hired Help to Care for Your Parent

If your parent cannot be left alone while you work (or go to school full-time, or actively search for work, or if you are disabled) and you must pay someone to stay with him or her, this cost might qualify as a medical expense. Better still, the money you pay out might get you a credit for dependent care. Be aware, this does not mean a babysitter. The person must provide nursing-type services, and the amounts you pay must not be reimbursed.

Credits are generally more valuable than deductions, because they are subtracted dollar for dollar from your tax bill while deductions lower the income on which you are taxed. This credit is also possible if you are actively searching for a job, if you are a full-time student, or if you are disabled. The amount depends on your income.


Filing Status Boost

If you are a taxpayer who must file your tax return as “single,” your parent may make you eligible to file as “head of household” instead, causing you to owe less taxes. In order to file as head of household you must pay more than half of the costs of maintaining a home for your parent, and your parent must be your dependent (although he or she does not have to live with you). For example, your mother who lives in a retirement home can still qualify you to file as head of household if you meet the other standards.

Your tax preparer should be able to answers any questions you might have about the tax benefits available. Tax breaks or not, we take care of our own. After all, what comes around goes around, and they took care of us from day one. Tax assistance provides a little extra cushion so that we can take care of Mom and Pop more easily.


SIDEBAR: More About Support, from the IRS

Support includes the cost of items like food, medical and dental expenses, a place to live, transportation and furniture. The IRS states that your parent’s funds are not considered support unless they are actually spent for support.

IRS example: Your mother received $2,400 in Social Security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation. She put $300 in a savings account. Even though your mother received a total of $2,700 ($2,400 + $300), she spent only $2,400 ($2,000 + $400) for her own support. If you spent more than $2,400 for her support and no other support was received, you have provided more than half of her support.

What does not count as support?

  • Federal, state, and local income taxes paid by persons from their own income
  • Social Security and Medicare taxes paid by persons from their own income
  • Life insurance premiums
  • Funeral expenses


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

Meet Teresa