Downey Office: (562) 927-2000
Anaheim Office: (714) 491-9500

Strayer Saylors & Associates, Inc.

Caring for an Elderly or Incapacitated Individual

With people generally living longer, we frequently find ourselves in the position of a caregiver for elderly or incapacitated individuals. Whether it be an incapacitated or elderly spouse, an elderly parent or even a child, there are tax implications that need to be considered and can relieve some of the financial burden associated with being a caregiver. The following are some tax aspects of taking on the care of an elderly or incapacitated individual.

Dependency exemption - You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption. To qualify:

o You individually or through a multiple support agreement must provide more than 50% of the individual's support costs,
o The individual must either live with you or be related,
o For 2012, the individual must not have gross income in excess of the exemption amount $3,800 (up from $3,700 in 2011),
o The individual must not himself file a joint return for the year, and
o The individual must be a U.S. citizen or a resident of the U.S., Canada or Mexico.

Medical expenses - If the cared-for individual qualifies as your dependent or medical dependent, you can include any medical expenses you incur for the individual along with your own when determining your medical deduction.

Amounts paid to a nursing home are fully deductible as a medical expense if the principal reason that a person stays at the nursing home is for medical, as opposed to custodial, etc., care. If a person is not in the nursing home principally to receive medical care, then only the portion of the fee that is allocable to actual medical care qualifies as a deductible medical expense. But if the individual is chronically ill (as defined above), all of the individual's qualified long-term care services, including maintenance or personal care services, are deductible.

Reverse mortgage as alternative to nursing home- It is often desirable for an elderly person to remain in his or her own home with proper in-home care rather than entering a nursing home. A reverse mortgage loan may make this a feasible alternative to a nursing home. If this approach is taken, don't forget the household help is deductible in the same manner as the nursing home. In addition, household employees must be paid by payroll.

Filing status - If you are not married, you may qualify for head of household status by virtue of the cared-for individual. If the cared-for individual: (a) lives in your household, (b) you pay more than half the household costs, (c) the individual qualifies as your dependent, and (d) is a relative, you can claim head of household filing status. If the person you are caring for is your parent, he or she does not need to live with you, as long as you provide more than half of the household costs and he or she qualifies as your dependent. For example, if a parent is confined to a nursing home and you pay more than half the cost, you are considered as maintaining a principal home for your parent.

Dependent care credit - If the cared-for individual qualifies as your dependent, lives with you, and physically or mentally cannot take care of themselves, you may qualify for the dependent care credit for costs you incur for their care to enable you and your spouse to go to work.

Exclusion for payments under life insurance contracts - Any lifetime payments received under a life insurance contract on the life of a person who is either terminally or chronically ill are excluded from gross income. A similar exclusion applies to the sale or assignment of a life insurance contract to a person who regularly buys or takes assignments of such contracts and meets other qualifying standards.

If you are a caregiver and would like to discuss your situation further, please call this office.