Every day the number of households with multiple generations grows. The growth in multi-generation homes happens for a number of reasons including the economy. We're also living longer and the cost of nursing home or assisted living can be out of reach for many families. The result is children becoming caregivers for elderly parents.
This change is making many taxpayers wonder if their parents qualify as dependents and if they can deduct part or all of the expenses under the Qualifying Relative Exemption. The IRS has a set of 5 criteria to qualify for the deduction:
a. You are not a dependent of someone else.
b. If married must not file a joint return.
c. Your parent is a citizen or resident alien of the U.S., Canada or Mexico.
d. You paid more than half of your parent's support for the calendar year.
e. Their gross income was less than the exemption amount.
In most cases Social Security is not federally taxable income, this is particularly true if it is your parent's only income. If your parent is a qualifying dependent you may also include his or her medical expenses that you paid with yours on your return which may raise the total to a deductible level. However, even in the situation where your parent is not your dependent and you still pay all or part of their medical bills you can still include those costs with your expenses for your deduction.
Another tax advantage you may qualify for is Head of Household status. This is available to you if your parent qualifies as your dependent and you are not married in the eyes of the IRS and you pay more than half of your parent's household expenses. You may even qualify for this if your parent does not live with you but you cover half of their living expense.
The Dependent Care Credit may be available to you if your qualifying dependent is physically or mentally disabled, but remember like all credits rules apply. The IRS says, "An individual who was physically or mentally incapable of self-care had the same principal place of abode as you for more than half of the year, and was your dependent... " Your parent may qualify as a dependent for the purpose of this credit regardless of income, filing status, or whether you could be claimed as a dependent on someone else's return.
The cost of paying for the care of a qualifying elderly parent while you work or look for work might make you eligible for a credit that is usually a percentage of the cost of care required in order for you to work dependent care expenses that you paid to a care provider. Once again there are very specific rules that apply; the care provider may not be you, your spouse or your child (under the age of 19). As part of your return you will be required to give name of the care provider and tax id or social security number.
The rules can be confusing and the IRS website provides a great deal of information for those willing to ferret it out. The information on the IRS website is not always as user friendly as you might like, so when in doubt always check with a qualified Certified Public Accountant.
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