3 Tax Wise Methods for Supporting Parents!
With the aging of America, many people are finding themselves supporting their parents. While this could be a burden in many ways, the IRS does offer at least 3 methods to write-off expenses of supporting your parents.
Finance Your Parents’ Home
If your parents’ home is paid off and offers no deductions beyond property taxes, their total itemized deductions may not be more than their standard deduction. In this case, consider buying or financing their home:
You can treat it as your second home and deduct mortgage interest and property taxes you pay so long as your name is on the loan.
You can buy the home (for fair market value), lease it back to them (again, for fair market value) and treat it as a rental. Net losses are deductible if you qualify for the rental real estate loss allowance or “real estate professional” status.
Example: Mom’s house is worth $100,000. You buy it for $1,000 down and Mom finances the rest at 6% for 30 years. You’ll pay $593.56 per month for principal and interest, plus whatever needed for taxes, maintenance, and insurance. You can lease it back for $600-800 to break roughly even.
Deduct Medical Expenses for Your Parent
If you claim your parent as a dependent (or if you would be eligible to do so except for the fact that their income exceeds the $4,050 exemption amount), you can deduct medical expenses you pay on your parent’s behalf (including long-term care costs) on your own return. If you’re single, claiming your parent may let you file as head of household, even if your parent lives in a nursing home. (See IRS Publication 502 for a list of deductible medical expenses.)
Consider a Multiple Support Declaration
A multiple support declaration lets you claim your parent as a dependent even if you don’t provide more than half of their support. This is a smart strategy when two or more siblings help support a parent. Here’s how it works:
- You have to provide more than 10% of the person’s support.
- You and the other contributors jointly have to provide more than half of the person’s support.
- Each of the other contributors has to be eligible to claim the person as a dependent, except that they did not provide more than half of the support.
- Each of the other contributors has to sign the Multiple Support Declaration giving you the exemption.
For those of you who are supporting your parents or may soon be, hopefully this information will help you plan how to write-off these potential expenses.
Should you have any questions, please feel free to give me a call at 240-398-1216.