At some point in many people’s lives, they will have to take care of an elderly relative. This can be a difficult situation for everyone involved, but one positive is that there are four tax breaks that the caretaker could receive because of their help.

Here is an overview of the commonly missed tax breaks associated with caring for an elderly relative:

1. Medical expenses

If you itemize on your tax return, you are able to report any medical expenses incurred for that year. You would also be able to include any out-of-pocket medical expenses for an individual that qualifies as your “medical dependent”. Becoming someone’s “medical dependent” is much easier than a “dependent” as it generally involves the caretaker providing over 50% of his or her support, including medical costs. Qualified long-term care services required by a chronically ill individual and eligible long-term care insurance premiums are some examples of costs that be deducted.

Keep in mind that to actually deduct any medical expense, that total amount needs to exceed 7.5% of your adjusted gross income (AGI).

2. Filing status

Another option if you are not married, is to change your filing status to “head-of-household”. To claim the “head-of-household” status you need the following to be true:

• The person you’re caring for lives in your household,
• You cover more than half the household costs,
• The person qualifies as your “dependent,” and
• The person is a relative.

An exception to the first point above, they do not need to be living with you if the one you are caring for is your parent as long as you are still providing more than half of their household costs and you are able to claim them as your dependent.

Obtaining the status of “head-of-household” will give you a higher standard deduction and lower tax rates than a single filer. Because of this, there are tests that need to be passed in order for you to claim that status, like determining if your loved one is a “dependent”. The Tax Cuts and Jobs Act (TCJA) have suspended dependency exemptions for 2018 through 2025. Even with this suspension, the dependency tests are still used when qualifying for various tax benefits and credits.

For an individual to qualify as your “dependent,” the following must be true for the whole of the tax year at issue:

• You must provide more than 50% of the individual’s support costs,
• The individual must either live with you or be related,
• The individual must not have gross income in excess $5,050  (this amount is adjusted annually for inflation),
• The individual can’t file a joint return for the year, and
• The individual must be a U.S. citizen or a resident of the U.S., Canada or Mexico.

3. Dependent care credit

You may qualify for the Dependent Care Credit if an individual that qualifies as your dependent, lives with you, and being the one cared-for that physically or mentally can’t take care of him- or herself. This credit would be for costs needed/incurred to care for the dependent so that you and your spouse are still able to work.

4. Nonchild dependent credit

Along with the other benefits of the TCJA, for 2018 through 2025, any dependents that don’t qualify for the Child Tax Credit, including being a dependent parent, the taxpayer can qualify for a $500 federal income tax credit.

To be eligible, your parent has to pass the gross income test mentioned previously to be considered as your dependent, as well as you having to pay over 50% of the support of your parent.

There is a phase out linked to this credit. Taxpayers with AGI over $200,000 ($400,000 for a married couple that files jointly), will have the credit of $500 reduced by $50 for every $1,000 that your AGI exceeds the applicable threshold.

Contact a Wegner CPAs tax advisor if you’d like to further discuss the tax aspects of financially supporting and caring for an elderly relative.