Dear Mr. Premack: As I get serious about completing my tax return, I am wondering if it is possible to reduce my taxes by claiming my father as a dependent. He lives in assisted living but could not afford the rent. So every month he pays $1100 (his entire social security check) and I pay $1400. That covers his rent and food but not his medications, which I also purchase for him. I am single. Am I justified in claiming him as a dependent? – B.N.
If you can claim your father as a dependent on your income tax return, you will reduce your tax burden. I am assuming that your mother has died or that they are divorced. To qualify as your dependent, a person must meet five legal conditions imposed by the Internal Revenue Code:
The person (your father) must be a US Citizen or legal resident alien.
The person must receive more than half of his support from you. You state that your father’s income is $1100 and that you pay $1400 and more for his rent and other expenses. Since you are paying more than 50% of the cost for his support, this test is passed. In general, you can count your expenditures for his food, lodging, clothing, education, medical expenses, recreation, transportation and other necessities. Keep close track of your expenditures to be sure this condition is met.
You can only claim the deduction when the person is related to you, or is a member of your household. Even the tax code recognizes that your father is related to you, so this test is passed. The law allows the deduction for support of parents even if they do not reside in your home (so long as your parents meet all the other conditions discussed here).
Your father’s gross income as reportable on his tax return cannot exceed $3800 in 2012 (the figure changes every year). Gross income does not include social security retirement income unless ½ the benefit amount plus other income exceeds the filing threshold amount. When social security is a person’s only source of income, it is very rarely included in gross income. Your father’s income is all social security, and is low enough that it does not count as gross income, so this test is passed.
The person must not file a joint return with any other taxpayer. If your father’s tax return is filed as “single” or “qualifying widower” because he is widowed or divorced then this test is passed.
When a person passes all five tests, you may legally take the dependency exemption on your tax return. Also, claiming your father as a dependent allows you to file as “head of household” instead of as “single” on your personal return. This increases your own standard deduction and entitles you to a lower tax rate. For instance, if your taxable income was $95,000 then, without any other adjustments than your personal exemption, you would owe about $17,000 in tax. But if you claim your father as a dependent and file as head of household, your tax burden would be reduced to about $14,000.
Additionally, you should track exactly how much you spent on medical care for your father. Deducting the medical expenses you paid for him is easier than claiming him as a dependent. Instead of all five conditions listed above, he need only meet the first three conditions for you to deduct the part of his medical expenses which you paid. This is especially helpful when you are paying for medical care in a skilled nursing facility (which is treated as a medical expense) but is not as helpful when you are paying for assisted living (which is generally not considered to be a medical expense).
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2012) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, April 1, 2013