Caregiving: The Medical Expense Deduction

Nearly one out of every four U.S. households provides care to a relative or friend aged 50 or older and about 15 percent of U.S. adults care for a seriously ill or disabled family member. As more people find themselves caring for an elderly parent or relative, expenses for everyone involved are mounting. From nursing homes to long-term care to prescriptions to home modifications to doctor visits, it is important to know the rules governing taxes and caregiving. In order to qualify for tax deductions as a caregiver, the following tests must first be met:

  1. You must provide more than half the support for the person;
  2. If you itemize your taxes, unreimbursed medical and dental expenses can be deducted from your taxes. However, the expenses must exceed 7.5 % of your adjusted gross income;
  3. The person you care for must be a relative or have lived with you for the entire year;
  4. The person’s gross income cannot exceed $3,100. This does not prevent claiming the medical expenses paid on their behalf, however;
  5. The person must be a citizen or resident of the U.S., Canada or Mexico; and
  6. The person must not have filed a joint tax return with his or her spouse.

If several adult children are helping to care for the person, you must file a "multiple support agreement" (IRS Form 2120). This allows a family to designate which of the caregivers will claim the care recipient as a dependent.

Most of the deductions you would like to take - food/clothing/shelter - are not permitted, as they are considered personal expenses of living. However, two possibilities exist for a tax benefit. The first would allow you an extra exemption for claiming your Mother as a dependent. The second would allow you to claim a deduction for medical expenses you pay directly to the providers of her care (if you can otherwise meet the threshold for the medical expense deduction and itemize your deductions on Schedule A).

Medical expenses you pay directly to her doctors and other providers qualify as medical expenses that can be deducted on Schedule A as itemized medical deductions. However, you should pay the expenses directly, not reimburse your Mother. This deduction is allowed if you provide more than half of your Mother's support and you can otherwise meet the threshold (which is 7.5% of your Adjusted Gross Income) for deducting medical expenses.

What Are Medical Expenses?

Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include dental expenses. You can include only the medical and dental expenses you paid this year, regardless of when the services were provided.

You should consult with an accountant for the complete list of available medical expense deductions, or see IRS Publication 502. However, the following are some of the pertinent caregiver expenses:

1. Capital Expenses

You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property - the difference is the medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. Some of the eligible improvements are:

  • Constructing entrance or exit ramps for your home.

  • Widening doorways at entrances or exits to your home.

  • Widening or otherwise modifying hallways and interior doorways.

  • Installing railings, support bars, or other modifications to bathrooms.

  • Lowering or modifying kitchen cabinets and equipment.

  • Moving or modifying electrical outlets and fixtures.

  • Installing porch lifts and other forms of lifts

  • Modifying fire alarms, smoke detectors, and other warning systems.

  • Modifying stairways.

  • Adding handrails or grab bars anywhere (whether or not in bathrooms).

  • Modifying hardware on doors.

  • Modifying areas in front of entrance and exit doorways.

  • Grading the ground to provide access to the residence.

2. Long-Term Care Expenses

You can include in medical expenses amounts paid for qualified long-term care services. Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care professional.

3. Nursing Home Expenses

You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution. This includes the cost of meals and lodging in the home if a principal reason for being there is to receive medical care.

4. Nursing Services

You can include in medical expenses wages and other amounts you pay for nursing services. The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in your home or another care facility.

Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses.

5. Transportation Expenses

You can also include in medical expenses any amounts paid for transportation primarily for, and essential to, medical care.

Caring for a parent within your home can be a rewarding and heartfelt experience, but it can also be an emotionally and physically daunting task. It is also very expensive. However, with the right advice a family caregiver can take advantage of the existing tax rules so that the financial costs can be lessened. The claiming of medical expenses and deductions should be made with the assistance of your CPA. For more information on exemptions, see IRS Publication 501, and for more information on medical expenses see IRS Publication 502. These are available from your local IRS office, by mail or on the IRS website: www.IRS.gov.

This Memorandum is based on current law and is for informational purposes only. It is important that you discuss all legal options and consequences with a qualified elder law attorney prior to any action. Should you wish to discuss your situation with us, please call (631) 424-2800 for a consultation. For additional Memoranda, please call or visit our website at www.elderlaw.pro.