TAX ADVICE: Tax Deductions

Question: We are paying for most of my Dad’s medical expenses. Are there any tax deductions we can claim?

Answer: Yes, you can. The first thing you want to do is to see if you can claim him as a dependent. You and he need to meet two tests to be eligible for the dependent care deduction: your father’s income must be under a certain limit set each year by the IRS-you do not need to include his Social Security income. He must, however, include income from pension benefits, interest and dividends from investments or withdrawals from any retirement savings plans, like IRAs. On your end, you need to prove that you cover more than half of your Dad’s costs for housing, food, transportation, medical care and other necessary living expenses. By the way, a parents does not need to live with you to be declared as your dependent. But, since your father does not live with you, the IRS will also allow you to include a percentage of your mortgage, utilities and other shelter-related expenses and count those toward meeting the “more than half of your Dad’s expenses” threshold. If your father qualified as a dependent, then you’ll be able to claim him as a personal exemption to further reduce your taxable income.

Medical expenses offer you another series of deductions even if your father doesn’t qualify as a dependent. In this instance, your best resources to find out what you can deduct is IRS Publication 502, Medical and Dental Expenses. To claim these deductions, you still need to show that you pay for more than half of your father’s support, but he does not need to meet the dependent income test.

If your Dad’s medical and long term care expenses exceed 7.5% of your Adjusted Gross Income (AGI), then you can claim those medical deductions that exceed this amount. The IRS also allows you to include your medical expenses in this total. For example, if your adjusted gross income is $40,000, then you are able to deduct medical expenses that exceed $3,000, which is 7.5% of your (AGI) of $40,000. On the other hand, if both of your medical expenses came to $2,600, you are not allowed to deduct any of these medical expenses because they are not more than 7.5% of your adjusted gross income.

Here are just some of the medical expenses you can deduct: transportation to medical appointments, including ambulance transport, long-term care insurance premiums, prescription drugs, Medicare Part D premiums, privately hired in-home health care, nursing care, chiropractor visits, dental treatment, hearing aids, eyeglasses, nursing home care, and out-of-pocket medical expenses resulting from surgeries and procedures. You can deduct changes you’ve made to your home to care for your father, such as: constructing ramps, widening doors, installing railings, modifications to the bathroom, kitchen, stairways, and entrance or exit ways. If a capital improvement will actually increase the value of your home (e.g. installing a stair lift or adding a new room to the house), then the cost of the improvement is reduced by the increase int he value of your property.

If you’d like free help filing your taxes, be sure to look into AARP’s Tax Aides program of terriv volunteers who will walk you through the kinds of deductions we’ve discusses and actually help you file your tax return. Many sites have the capacity to even file your return electronically. Call 1-888-227-7669 to find a tax counseling site near you or go to www.aarp.org/taxaide. These will be operational from February 1st through April 15th.

Information provided by Dr. Linda Rhodes, Finding Your Way, 250 Real Life Questions and Commonsense Answers http://lindarhodescaregiving.com/index.htm