May 4, 2015
To deduct your elderly parent as a dependent on your income tax return, you must first meet four tests.
The tests are:
1. “Not a qualifying child” test
2. Member-of-household or relationship test
3. Gross income test
4. Support test
The first test is the easiest to meet. By definition, a qualifying child is a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister or descendant of any one of them.
As you can see from this definition, your mother and father do not fit this defined terminology. So your parents cannot be your qualifying child.
To meet the member-of-household or relationship test, the person must have lived with you the entire year or be part of a group of persons not required to live with you.
The IRS publishes a list of persons who are not required to live with you. Your father and mother are on that list, so you can meet this test without having either one or both of your parents live with you at any time during the year. Your parents must be citizens, nationals or residents of the United States or residents of Canada or Mexico.
This rule is very helpful to you if you want to deduct your elderly parents as dependents on your tax return despite the fact that your parents are in a nursing home or some other type of care facility.
The gross income test is met if a person’s gross income for the year is less than the personal exemption amount – $3,950 in 2014 and $4,000 in 2015. Gross income is all income in the form of money, property and services that is not exempt from tax.
The gross income test works out well in a situation where the elderly parent has only Social Security income or minimal sources of other income in addition to Social Security. In this situation, all of the Social Security income is generally nontaxable income, allowing the elderly parent to meet the gross income test.
The support test is met if you provide more than half of your elderly parent’s support. Total support includes amount spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities. The IRS provides taxpayers with a worksheet to help in making this calculation.
If you make a lump-sum advance payment to a nursing home to take care of your elderly parent for life, and the payment amount is based on the parent’s life expectancy, the amount of support provided each year is the lump-sum payment divided by the parent’s life expectancy.
If you are making monthly payments to the nursing home facility, this monthly amount times 12 months would be considered part of the support you provided.
If you are helping to support an elderly parent who is in a nursing home or some other type of care facility, take the time to look into the gross income and support tests. You might discover you are entitled to a dependency exemption deduction that you have never before realized.
This article was originally posted on May 4, 2015 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at firstname.lastname@example.org.