Tax Breaks to Consider When Caring for an Aging Parent

Elder care expenses: Six tax saving tips and considerations

Caring for an aging parent often entails both medical and custodial care expenses. Medical expenses for someone in a nursing home can vary depending on their individual health needs, the facility they are in, and their insurance coverage. Following are some tax saving tips and planning considerations if you are responsible for the care of an elderly parent or relative.

1. Tax deductions for medical expenses

It is important to distinguish between medical expenses and custodial expenses when considering eligibility for tax deductions. Your parent or you may be able to deduct qualified medical expenses that exceed 7.5% of adjusted gross income (AGI).

Medical expenses may include:

• Expenses that are primarily for the diagnosis, cure, mitigation, treatment, or prevention of a specific illness or medical condition
• Costs related to services provided by medical professionals, such as doctors, nurses, and therapists
• Prescription medications and medical supplies necessary for the treatment of a medical condition
• Costs associated with medical procedures, surgeries, laboratory tests, and diagnostic tests
• Transportation costs, such as mileage for travel to medical appointments

Note: Medical expenses must be itemized and provide additional savings only if the total itemized deduction exceeds the applicable standard deduction.

Custodial care expenses may include:

• Assistance with activities of daily living such as bathing, dressing, eating, and mobility
• Room and board

2. Long-term care insurance

As part a long-term care plan, you or your parent(s) may have purchased long-term care insurance (LTC). LTC insurance helps cover the costs associated with long-term care services for individuals who are unable to perform activities of daily living due to chronic illness, disability, or cognitive impairment. This insurance provides financial assistance for services typically not covered by health insurance, Medicare, or Medicaid. The costs include the cost associated with an assisted living facility as well as nursing care provided in a facility or at the parent’s Residence. Premiums paid toward a qualified portion of the LTC insurance plan may be deductible as a medical expense if, when combined with other itemized medical expenses, the cost exceeds 7.5% of AGI. The amount of qualified LTC premiums vary based on the age of the insured individual.

3. Assisted living facilities

If your parent resides in an elder care facility, such as Westminster Canterbury, or an assisted living facility, a large portion of the monthly rent and the initiation fee probably qualifies as a medical expense. These facilities have done studies to determine the portion of the fee or rent that qualifies as a medical expense which are available upon request.

Most of the cost for a parent to live in a memory care facility should qualify as a medical expense, along with nursing care.

These expenses can be deducted as medical expenses to the extent they are not reimbursed by insurance.

4. Parent qualifies as a dependent

A parent may qualify as your dependent if you provide more than half of their total support for the year and they are within certain income limits. If your parent qualifies as your dependent, you can add medical expenses you incur for them to your own medical expenses when calculating your medical expense deduction. Unmarried individuals with a dependent may qualify for head-of-household filing status, which has a higher standard deduction and lower tax rates than filing as single. You may be eligible to use this status even if the parent for whom you claim an exemption does not live with you.

In computing the applicable income limits for the parent’s dependency test, tax exempt income and Social Security Benefits are excluded from the calculation.

5. Selling your parent’s home

If your parents are no longer occupying their home and wish to sell the property, up to $500,0000 of the profit from the sale may be tax-free. To take advantage of this benefit, your parents must have owned this home and used the home as their primary residence for two of the last five years before the sale. An exception can be made to this rule if they become physically or mentally unable to care for themselves during the five-year period.

For a single parent, the exclusion is $250,000.

6. Gift tax issues

The annual gift tax exclusion for 2024 is $18,000 per donee per year. If you gift money to a parent to help defray their medical costs this is a gift to the parent and counts towards the use of your annual gift tax exclusion.

However, to the extent you pay directly to the provider the cost of your parents’ medical expenses, these payments do not count as gifts.

Tax laws can change over time so it is important to stay up to date with the latest regulations so you can make informed financial decisions. Keiter’s Family, Executive, and Entrepreneurial Advisory Services team is experienced in all aspects of income, gift and estate taxation. Questions on how these tax considerations may apply to your unique situation? Contact your Keiter Opportunity Advisor.

For more tips to help with individual tax needs, download our latest tax planning guide to learn about key tax provisions and strategies for minimizing your taxes.

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