Caring for an aging family member allows you to spend time with loved ones and monitor their care. While it can be a rewarding experience, it can also be challenging. Plus, you may face significant costs, even while caring for somebody at home.
Fortunately, tax deductions might be available to ease the burden of providing care for your family.
Caregiver Tax Deduction
While providing care, you'll likely need to pay for supplies and other costs related to your loved one's health conditions. When that happens, you might be able to deduct the expenses you pay. However, you need to meet specific requirements to take advantage of those deductions.
To qualify for a deduction, the person you're caring for must be a dependent (more on that below). You also need to itemize expenses instead of taking the standard deduction on your tax return. That's because medical expenses are part of your itemized deductions — and it doesn't always make sense to itemize.
Finally, you can only deduct costs that exceed 7.5% of your adjusted gross income (AGI).
You can deduct expenses you pay for each year. IRS Publication 502 provides detailed instructions and a list of expenses that might qualify. In general, costs that are directly related to diagnosing, treating and preventing mental or physical illness may be deductible. However, some preventative measures don't qualify, so double-check before you claim a deduction.
Some of the most common expenses you might face when caring for an aging relative include:
Costs related to modifying your home (adding ramps and support bars, for example)
Medical supplies required for care
Oxygen and oxygen equipment
Transportation related to medical treatment
Additional nursing care you pay for
Other expenses might also qualify. Ultimately, when you pay for anything related to your loved one's care, it's wise to research if the cost is deductible on your tax return.
Family Members as Dependents
You can only deduct medical expenses for dependents, so it's critical to verify that your family member will qualify if you want to deduct the costs of care. Three criteria can help your loved ones qualify as dependents:
They must be qualifying relatives, which typically includes parents, grandparents, in-laws, children and siblings. However, others who live with you might also qualify as relatives.
The person must be a U.S. citizen or a resident of the United States, Canada or Mexico. Some non-citizen U.S. nationals may also meet the requirements.
You must provide at least half of the financial support for your elderly relative in the year for which you want to take a caregiver tax deduction.
The rules for dependents can get complicated. For example, a qualifying relative can potentially include somebody who is not related to you but who lived in your household for the entire year. And if you and your siblings share the costs of supporting a parent, you can potentially get a deduction even when you provide less than half of that parent's financial support.
The Bottom Line
Caring for an aging relative allows you to ensure loved ones get the care you think is appropriate. You can also save money in some cases, but you'll still likely have to pay substantial costs. That's especially true when an elderly relative has health issues. With a caregiver tax deduction, you might benefit from tax rules aimed at providing relief when families face high medical costs.
Tax deductions help to lower your taxable income, which results in a lower tax bill. With those savings, you have more money available for care, and you can reduce the financial burden on your family. But the rules are complicated. Discuss your situation with a CPA to identify every opportunity for a deduction and to verify that you're claiming deductions properly.