If you are providing financial support for your aging parents, you may qualify to claim an exemption for them as a dependent on your tax return. The exemption allows eligible taxpayers to deduct up to $4,050 for each dependent claimed on their 2016 tax return.
For your parents to qualify as your dependent, in most cases they must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled). Generally, their Social Security benefit is excluded from this income limitation, but income from dividends, interest, and retirement plans are included.
Also, you must have contributed more than 50% of your parent’s total financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, you can claim the exemption even though no one individually provided more than 50%. However, only one of you can claim the exemption.
While you usually can exclude Social Security benefits from your parent’s income in determining the income limitation, the benefits can still affect your ability to qualify for the exemption. If your parent uses their Social Security money to pay for medicine or other expenses, you may be providing less than 50% of their total financial support.
Also, if your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you pay for that housing expense counts toward the 50% test.
Other Potential Benefits
If you fall just short of qualifying for the exemption, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit, the combined medical expenses paid for you, your other dependents, and your parent must exceed 10% of your adjusted gross income.
The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others. You can reach me at HZemel@BerdonLLP.com or contact your Berdon advisor.
Hal Zemel, a Tax Partner at Berdon LLP, New York Accountants, has nearly 25 years in public accounting and advises businesses in the manufacturing, distribution, advertising, and real estate sectors.