The out of pocket cost for caregivers is amazingly high. There are so many needs when caring for a loved one with any type of dementia disease or others. I think it is important for families to know what is available as tax deductions, if they apply in your particular cases.
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Income Tax Deductions
Assisted Living The cost of assisted living is deductible if a principal reason for being in assisted living is to get medical care. If a patient with Alzheimer’s needs to be supervised, then the housing and medical care costs are deductible. If a parent simply wants to live in a community where they have meals prepared for them and they happen to receive some medical care, then only the medical care is deductible and not the room and board.
If a loved one is in a memory care community and they are paying out of pocket any amount of money not covered by Long Tern Care Insurance, they can take that amount off of their taxes, as well as any medications they are taking. If a family member is paying for their care, they are eligible for the deduction. You may only deduct out of pocket expenses—not expenses paid for or reimbursed by insurance. If your parent is paying these expenses, then your parent would deduct them on their tax return. A child may deduct assisted living and medical expenses that they pay for their parent so long as the child pays over half the parent’s annual support. The parent does not have to qualify as the child’s dependent (see below) for these medical deductions.
If a nurse or home healthcare worker assists your parent with dressing, bathing, or taking medications in your home or your parent’s home, those wages are deductible medical expenses. If the assistant also performs household chores, that portion of their wage is not deductible.
Adult Day Programs Day programs for adults may be deductible as medical expenses if the adult is considered disabled. If the adult attends the day program so that their primary caregiver i.e. child or spouse, can go to work, the caregiver may alternatively be eligible for the Dependent Care Credit. The taxpayer may only claim one or the other, so always discuss which option makes better sense for your situation with your tax preparer.
Dependent Deductions You may claim your parent as a dependent on your own income tax return if you meet five tests:
1. The parent must be related to you i.e. your parent, step-parent, in-law.
2. The parent must be a U.S. Citizen or resident or Canada or Mexico.
3. The parent may not file a joint tax return unless it is solely to obtain a refund.
4. The parent cannot have gross income > $4,050 (for 2016). This sum does not include tax exempt income or social security.
5. You must provide over half your parent’s support i.e. rent, food, clothing, or you must provide 10% of the support with other family members providing the other 40% of support.
**Parent does not actually have to live with you to meet all of these factors.
If you file as single or married filing separately and you pay over half the expenses for your parent, you may also be eligible to use the head of household filing status which can help if you use the standard deduction.
Tax Reform Changes
Medical Deductions As a result of the recent tax reform, taxpayers may write off medical expenses that exceed 7.5% of their adjusted gross income for 2017 and 2018. This was already the threshold set for taxpayers over age 65, but is a slight reduction for taxpayers under 65. After 2018, the threshold increases to 10% of adjusted gross income for everyone.
Standard Deduction For 2017, the standard deduction remains similar to previous years. For 2018, the standard deduction will essentially be doubled at each filing status; however, taxpayers will no longer have personal exemptions. What this means is that fewer taxpayers will itemize because their total deductions will not exceed the standard deduction. Taxpayers with significant medical expenses should still keep their receipts.