New York Estate Planning & Elder Law Blog
EVERY LITTLE BIT COUNTS
For those of among us who care for elderly parents or relatives, you do it without expectation of compensation or reimbursement. You dedicate time, money, resources and do it day in and day out and will continue to do so without concern for recompense. That does not mean, however, that you would not take any financial reimbursement from outside companies or or tax exemptions from the IRS. Most people do not realize that caring for an elderly parent or relative comes with some fairly generous tax benefits. There are some very important and precise legal definitions that need to be satisfied before you can properly claim your elderly relative dependent.
TAX LAW DEFINITIONS AS QUALIFYING DEPENDENT
The IRS defines a non-child dependent rather precisely. IRS publication 503 lays out the IRS definition in detail. To meet that definition, you must be able to establish and document the following:
- The person for whom you care was unable to physically or mentally care for himself/herself, and
- Lived with you for more than half the year, and
at least one of the following
- You would have been able to claim them as a dependent, but for their non-exempt income being more than $4,000 per year, or
- your dependent filed their own tax return, either singly or jointly, or
- someone else claimed them as a dependent on their own tax return.
Further considerations that should be noted:
- There are no age restrictions for dependent or the caretaker;
- The person does not have to be a blood relative, although, as noted above, they must live with you for more than half the year; The person claiming the tax credit must have earned income and provide at least for at least half of the support towards the dependent needs, although it should be noted that in some limited circumstances, these expenses can be split up and spread out by other family members.
MORE ON THE DEPENDENT PERSON TEST
The IRS has an interactive tool to help determine whether or not your dependent satisfies the specific legal definition outlined in the law. First consideration, the person was unable to physically or mentally care for themselves. That means that they cannot clean themselves, dress themselves or even feed themselves. They must have constant attention to avoid injuring themselves. A diagnosis of Alzheimer’s disease, dementia or similar condition does not necessarily qualify them; they must still be able to meet these requirements. Second, the person must have lived with you for more than half the year, or, in the alternative, more than half of the time in which your dependent was alive during the year. For example, if your dependent lived with you from January 1 to May 1 and passed away on August 1, you satisfied the residency requirement.
The next requirement is “in the alternative”, in other words, only one of three things has to be true, and each deals with tax liability for the dependent. If the dependent earned less than $4,000 per year of non-exempt income. Social security is usually exempt and thus not counted towards the $4,000 threshold. Rental income from property that the the dependent owns, interest off of certain assets, dividends from investments and similar financial products certainly qualify. If the dependent filed their own tax return or if someone else filed a tax return claiming them as a dependent, such as a second caretaker who cared for them the other half of the year.