Taxes When Mom or Dad Depends on You
Even modest retirement income can thwart your attempt to claim a parent as a dependent.
Although you may spend a lot of time and money supporting an aging parent, claiming your mom or dad as a dependent for tax purposes can be difficult. But it’s not impossible.
First, your parent must be a U.S. citizen or live in the United States, Canada or Mexico. In addition, your parent must not file a joint tax return, unless it is to claim a refund. There are also gross-income limitations and financial-support requirements to meet.
Your parent’s gross income cannot be greater than the personal-exemption amount, which is $3,650 for 2010. Gross income excludes all or part of your parent’s Social Security benefits, depending upon his or her income level. But even then, many seniors with modest incomes from a pension, interest or investments are still disqualified by this test.
You must also furnish more than one-half of your parent’s support during the year in order to claim him or her as a dependent. If you parent lives in your home, you can count the fair-market rental value of your parent’s lodging as part of that support calculation.
The tax code provides some flexibility on this provision when several siblings pitch in to help with their parent’s expenses but no single sibling covers more than half of the expenses. In such cases, one sibling can claim the parent as a dependent as long as he or she: •provided as least 10% of the parent’s support; •no one else provided more than half of the support; and •everyone else who provided at least 10% support signs a declaration that they won’t claim the exemption, specifying the years for which they are waiving this right. The sibling claiming the parent as a dependent must keep the declaration for his or her records and file IRS Form 2120, “Multiple Support Declaration,” with his or her tax return.
This provision allows siblings to alternate who claims their parent as a dependent each year.
Medical expenses can add up
Once you determine that your parent can be claimed as your dependent, you may be able to deduct your parent’s medical expenses, as long as you itemize and your family’s total medical expenses exceed 7.5% of your adjusted gross income. Only those medical costs in excess of 7.5% of your AGI are deductible.
But it’s not hard for seniors to rack up medical expenses, which can include medical and prescription-drug costs not reimbursed by Medicare, as well as qualified long-term-care expenses or long-term-care insurance premiums, up to prescribed annual limits. For 2010, the deductible amount for a long-term-care insurance policy is $1,230 for those ages 51 through 60; $3,290 for those ages 61 through 70; and $4,110 for those ages 71 and older.
“Sandwich generation” families -- those who are also paying medical expenses for adult children under age 27 -- can benefit from pooling all of the family’s medical expenses in order to qualify for the medical deduction. For example, say a family had $80,000 in income and paid a total of $8,000 in medical expenses for themselves, their aging parent and their boomerang child. They could deduct $2,000 from their income taxes, which is the excess amount over 7.5% of their AGI ($80,000 x 7.5% = $6,000).