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4 Tax Breaks for Caring for an Elderly Relative

Have you been taking care of an elderly parent, grandparent, or dear friend? You may be eligible for these 4 tax breaks:

1. Medical Expenses:

If you are providing over half of the support for an elderly relative, regardless if they are your dependent or not, and you itemize deductions on your tax return, you can include any medical expenses you incur for the individual, along with your own, when determining your medical deduction. This can sometimes be called a “medical dependent.” As stated above, an individual qualifies as a medical dependent if you provide over 50% of his or her support, which includes medical costs. This test is less stringent than that used to determine whether an individual is your “dependent,” which is discussed below.

There are a wide range of allowable medical expenses that are allowed as a deduction. Here is a list of some more common expenses:

  1. Prescriptions
  2. Doctor Appointments
  3. Chiropractor Appointments
  4. Hospital Care

In addition to some of the common expenses listed above, the costs of qualified long-term care services required by a chronically ill individual and eligible long-term care insurance premiums are included in the definition of deductible medical expenses. There is an annual cap on the amount of premiums that can be deducted. The cap is based on age, going as high as $5,640 for 2022 for an individual over 70.

Do keep in mind that medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI) and to the extent that you were not compensated by insurance or otherwise.

2. Filing Status:

If you have been filing as “single” and taking care of an elderly relative, you may qualify for “head of household” status by virtue of the individual you’re caring for. A head of household (HOH) filer allows for a higher standard deduction and lower tax rates. You can claim this status if:

  1. The person you’re caring for lives in your household (see exception below),
  2. You cover more than half the household costs,
  3. The person qualifies as your “dependent,” and
  4. The person is a relative.

Exception to Number 1: If the person you are caring for is a parent, they do not have to live in your household to still qualify for the HOH filing status. They can be living in their own home or nursing home. And as long as you still provide half their household costs (which includes nursing home costs) and they qualify as your dependent, you can still claim HOH filing status.

3. Tests for Determining Whether Your Loved One is a “dependent”:

Dependency exemptions have been suspended (or disallowed) for 2018–2025. But even though they are currently suspended, the dependency tests still apply when it comes to determining whether a taxpayer is entitled to various other tax benefits, such as the Credit for Other Dependents.

For an individual to qualify as your “dependent,” the following must be true for the tax year at issue:

  • You must provide more than 50% of the individual’s support,
  • The individual must be related, or if not related, then lived with your for the full year,
  • The individual must not have gross income in excess of $4,400 for 2022 (gross income does not include certain social security benefits),
  • The individual cannot be claimed as a dependent on someone else’s 2022 return,
  • The individual cannot file a joint return for the year, and
  • The individual must be a U.S. citizen or a resident of the U.S., Canada or Mexico.

4. Dependent Care Credit.

If the cared-for individual qualifies as your dependent, lives with you, and physically or mentally can’t take care of him- or herself, you may qualify for the dependent care credit for costs you incur for the individual’s care to enable you and your spouse to go to work. The amount of the credit is based on a percentage of the dependent care expense, up to $3,000 per one dependent for 2022.

Contact us at Wegner CPAs if you’d like to further discuss the tax aspects of financially supporting and caring for an elderly relative.

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