Few taxpayers are able to deduct medical expenses on their tax return because the eligibility threshold is so high: Only qualified expenses in excess of 7.5% of your adjusted gross income are deductible. But if an elderly parent incurs substantial medical bills at home or in a retirement community, those expenses could significantly reduce his or her tax bill, or eliminate it entirely.
If you pay the bills and provide more than half of your parent's support, you can deduct the medical expenses on your own tax return. Deductible expenses include:
Medically necessary home improvements, such as constructing ramps, widening doorways for wheelchair access and installing grab bars in bathrooms.
Medically necessary equipment, such as wheelchairs, telephone devices for the hearing-impaired and special automobile hand controls.
Wages for home-health-care aides, plus related expenses such as meals and employment taxes. Even personal-care services can be deducted if the patient is chronically ill or cognitively impaired.
Normally, residents of an assisted-living facility or nursing home can deduct only the cost of medical care. But once a resident is certified as chronically ill, all monthly fees qualify as deductible medical expenses.
In addition, a portion of the one-time entrance fee, as well as the monthly fees, that residents pay to a continuing-care retirement community may be deductible. But the facility must be able to document what percentage of its overall expenses is related to providing medical care.
Other outlays that qualify for the tax break: prescription drugs, Medicare and Medicare-supplement premiums, and premiums for long-term-care insurance up to a specific dollar limit.