Whether you’ve taken your grandparents into your home or are merely helping to support them, your reward may extend beyond the satisfaction of assisting a loved one. The IRS offers several tax breaks to people who help out older relatives. Whether a deduction, a credit or an extra tax exemption, these areas of tax law seek to relieve a little of the financial burden on those who’ve assumed responsibility for all or part of an elderly relative’s bills. As always, read the rules carefully to see if you qualify for one of these tax breaks.
The IRS allows you to claim a qualified relative as a dependent, which provides you with an extra tax exemption. Exemptions directly reduce your taxable income. To qualify as your dependent, your grandparent must get more than half of his support from you. This can include the value of room and board if your grandparent lives with you, or things like medical bills, rent, insurance and other bills you might pay for them if your grandparent lives in his own home. Also, your grandparent can’t have more than a maximum income set by the IRS. In 2011 this maximum was $3,700. This does not include any Social Security benefits your grandparent receives, but does include interest and dividends from savings and investments.
Dependent Care Tax Credit
If you pay for a nurse or a home health aide to look after your grandparents so you can go to work, you may qualify for the Child and Dependent Care Tax Credit. Like exemptions, tax credits directly reduce your adjustable gross income. You may deduct up to $3,000 per person. In order for you to take this credit, your grandparents must live with you. The person you pay for the care may not be a relative, and the care must be necessary in order for you to hold down a job.
Deductible Medical Expenses
Even if you don’t qualify to take the Dependent Care Tax Credit, perhaps because your grandparents don’t live with you, you may still be able to deduct the medical expenses you pay for them if you itemize deductions. Your grandparents must meet the criteria for qualifying relatives, and the medical bills you pay for them must not be reimbursed by insurance or any state program. Add their bills to your own medical bills. If you itemize deductions, the IRS allows you to deduct medical expenses that are more than 7.5 percent of your Adjusted Gross Income. Medical expenses you may deduct include the costs of doctor’s visits, prescriptions, therapy, dental care and eyeglasses.
Even if you don’t provide all or most of your grandparents’ support, you may still qualify for tax breaks under the principal of shared support. If you and another relative together provide more than 50 percent of your grandparents’ support, and if your contribution is more than 10 percent, you can enter into a shared support agreement with the other supporting relative. Under this type of agreement, you agree to take turns claiming your grandparents as dependents.
- Creatas Images/Creatas/Getty Images
- Snowball Effect in Paying Bills
- How Long Before Unpaid Dept Becomes a Charge-off?
- How to Finance Medical Debt
- Who Pays Property Taxes in Foreclosure?
- The Best Ways to Organize Receipts & Bill Paying
- Should You Have Both the Husband's & Wife's Names on All Bills?
- How to Know If You Have Enough Money to Be Married
- How to Pay Bills Without a Bank Account
- Do Cell Bills Get Sent to the Credit Bureau?
- The Advantages of Paying Rent Up Front