Clearly your parents can be dependent on you (an issue
beyond the scope of any article) , but can you claim them as
dependents and get a tax deduction?
The answer - maybe (a lawyers stock in trade). There is a 5
(possibly 6) step test if you can claim a parent as a dependent and get a
tax deduction. You can find more details on the deduction in IRS Publication 501,
although not necessarily more clearly explained.
What do you get if you can claim a parent as a dependent? You
receive an additional dependent exemption valued at $3650 and
2010. This is the same standard deduction that you can claim for a
dependent child, although with children there is not normally an analysis that
you need to go through to see whether or not they qualify as dependents.
The 5 Step Test:
(1) The person you're claiming as a dependent must be related to
you or living with you. This is generally going to include parents,
grandparents, great grandparents, stepmother or stepfather, and an aunt or
uncle. Alternatively, the person must live with you all year as a member
of your household. A person can be related to you and your dependent but not
live with you -- this is very important when a mother or father
might still live in their own household, or reside in assisted living or
(2) There are citizenship requirements. The person must be
a United States citizen, United States resident, or a citizen of Canada or
(3) The dependent person cannot file a joint return with any
other person. For example, if your mother is married to your stepfather,
and they're filing a joint return, and you won't be able to claim your mother
as a dependent.
(4) The dependent parent cannot earn more than $3650 of
includable income. A great post from the New York Times "Ask
an Elder Law Attorney: Claiming a Parent as a Dependent" explains this
Now, here come the tricky parts. The parent's gross taxable income can't
exceed the I.R.S.'s personal exemption, which is set each year. It's $3,650 for
2010. Social Security income, however, isn't taxable unless someone receives
more than $25,000 in total income. So if your mother's only income is $6,000 of
Social Security, then she meets this test.
(5) You, the child, and must provide at least 50% of the dependent parents
support. An example from the New York Times article.:
Let's say your mother's expenses for the year amount to $12,500 for food,
lodging, clothing, medical and dental care, transportation and recreation -
anything spent on her behalf. Your mother will collect $6,000 in Social
Security benefits this year, so you have to spend more than that, at least
$6,001, to claim her as a dependent.
This last point can be the most challenging to determine. If you are
paying all of your mother's bills directly, then it can be pretty easy to say
if what you paid is greater than what she earned. However, if your dad
lives with you and you are buying your dad stuff (food, clothes, furniture) it
can be more difficult to determine if you meet the 50% test. You will
need to look back to Publication
501 to determine the "fair rental value" of what you are
providing. There is a great article at Bankrate.com "Tax
Help in Caring for an Aging Parents" that has more examples of how you
can look at the support test.
Oh, and one last point. If you are a "high income
earner" the amount that you can take as a dependent deduction is reduced,
and possibly eliminated. If your Adjusted Gross Income (AGI) is
more than $250,200 for joint filers, $166,800 for single filers, or $208,500
for heads of household (using 2009 figures), then the $3650 starts to reduce.
Regardless of the complexities, the dependent parent deduction can put money
in your pocket, so it is worth exploring if you are caring for older relatives.
R. Wheatley-Liss is a
shareholder of the Law Firm of Fein, Such, Kahn & Shepard, P.C., with
offices in Parsippany and Toms River, New Jersey. She concentrates her practice
in the areas of Elder Law, Estate Planning and Administration, Business
Planning and Tax Law. Deirdre's individual clients range from their 20's to
their 80's and beyond, while her business clients range from start-ups with
exciting new ideas to 100+ year old business ventures. Clients seek Deirdre's
advice and assistance with a variety of planning issues relating to identifying
and meeting their personal, family and business goals, whether in a planning or