Tax Deductions and Credits for Seniors Receiving In Home Care Services
It’s true; all good things must come to an end, and following the most wonderful time of the year comes perhaps the most dreaded time: tax season! If those words make you cringe, Home & Hearth Caregivers, the Chicago suburbs’ top provider of in home care services, is here to shed some light on tax deductions and credits specifically for older adults and family caregivers. And who knows? Qualifying for some of these benefits may just change your thinking about tax time!
Rules about income tax and tax credits can be daunting, especially when determining appropriate deductions and credits for senior care, but the savings can be significant (as high as $4,000 for a person with an annual income of $50,000) – so are well worth the effort to calculate.
Deductions for Seniors:
If you are an older adult receiving in-home care, or you are the spouse of someone receiving care, there are tax credits and deductions you may be able to claim:
- Elderly and Disabled Credit: An elderly and disabled credit is available for those age 65 and older (and those who are disabled and younger) whose adjusted gross income is below a particular threshold.
- 7.5% Rule: According to the IRS, you can “deduct only the amount of your total medical expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older. The 7.5% limitation is effective only from January 1, 2013 to December 31, 2016 for individuals age 65 and older and their spouses.” Seniors can use Form 1040, Schedule A to determine the deduction allowance.
- Sale of a Home: Older adults often sell their homes to move into smaller places or to move in with a family caregiver. If you’ve paid a mortgage for many years, you could make a profit on the sale of your home. The money you make from the sale may be non-taxable. If you have lived in your home for at least two out of five years before you sell, the profit you make on the sale – up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly – is not taxable.
- Long-term Care Insurance Deductions: Premiums paid for qualified long-term care insurance contracts may qualify as deductible medical expenses if they meet the AGI threshold.
Deductions for Family Caregivers:
The first step is to determine if your senior loved one can be claimed by you as a dependent, or if he or she needs to file taxes independently. Your senior can qualify as your dependent if you:
- Have covered at least half of the senior’s financial needs during the year, and
- Are either related to or have lived with the senior for at least a full year
By claiming the senior as your dependent, his or her expenses may be applied to one or more of the following credits:
- A deduction for medical expenses that account for at least 7.5% of your adjusted gross income.
- The federal Aging Parent Tax Credit (also referred to as the Dependent Care Credit), which is in place to help offset the cost of fees associated with senior care – either in the form of an income tax credit or tax deduction. In order to claim this credit, adult children must fill out Form 2441 when filing their tax returns.
- In addition to federal deductions, some states allow you to deduct a percentage of your federal Dependent Care Tax Credit on your state tax return. There are many qualifiers including age requirements, health and disability requirements, financial eligibility, and income limits, to name just a few.
- If a group of people, such as siblings or other family members, is sharing the cost of care for a senior parent or relative, a multiple support declaration (IRS Form 2120) can be filed to grant one family member the exemption. This deduction is subject to certain conditions, and families who are sharing care expenses should consult with a professional tax advisor.
Be aware that there are restrictions in place pertaining to who can be hired to provide care, disallowing the hiring of a spouse or grandchild. IRS Publication 926, Household Employer’s Tax Guide, will give you specific information as it relates to hiring a private caretaker.
Check with your tax advisor to confirm your or a loved one’s eligibility for any of these tax credits for seniors receiving home care services. And call on Home & Hearth Caregivers for professional in home care services, delivered by fully trained, experienced and compassionate senior caregivers you can trust to provide the highest quality care. You can reach us any time at 800-349-0663 to learn more about improving quality of life for yourself or your senior loved one.