Q: This past year, my father came to live with us following a stroke. We paid for most of his medical expenses and even remodeled our home to meet his disability needs. Are there any tax deductions we can claim?
A: Yes, you can. The first thing you want to do is to see if you can claim him as a dependent. You and he need to meet two tests to be eligible for the dependent care deduction: your father’s income during 2007 must be less than $3,400 – you do not need to include his Social Security income. He must, however, include income from pension benefits, interest and dividends from investments or withdrawals from any retirement savings plans like IRAs. On your end, you need to prove that you cover more than half of your dad’s costs for housing, food, transportation, medical care and other necessary living expenses. By the way, a parent does not need to live with you to be declared as your dependent.
But since your father does live with you, the IRS will also allow you to include a percentage of your mortgage, utilities and other shelter related expenses and count those towards meeting the “more than half of your dad’s expenses” threshold.
If your father qualifies as a dependent, then you’ll be able to claim him as a personal exemption reducing your taxable income by $3,400.
Medical expenses offer you another series of deductions even if your father doesn’t qualify as a dependent. In this instance, your best resource to find out what you can deduct is IRS Publication 502 “Medical and Dental Expenses.” To claim these deductions, you still need to show that you pay for more than half of your father’s support but he does not need to meet the dependent income test of $3,400.
If your dad’s medical and long term care expenses exceed 7.5 percent of your Adjusted Gross Income (AGI) then you can claim those medical deductions that exceed this amount. The IRS also allows you to include your medical expenses in this total. For example, if your adjusted gross income is $40,000 then you are able to deduct medical expenses that exceed $3,000 which is 7.5% of your (AGI) of $40,000. On the other hand, if both of your medical expenses came to $2,600 you are not allowed to deduct any of these medical expenses because they are not more than 7.5% of your adjusted gross income.
