Caregivers can claim expenses for ill relatives

Moneyline

But tax deductions are limited by somewhat complex IRS regulations

June 11, 2000|By Neil Downing | Neil Downing,THE PROVIDENCE JOURNAL

I care for my sister, who has Alzheimer's disease, but I don't claim her as a dependent on my tax return because she has too much income. Can I claim expenses for taking care of her? I have total care of her in my home.

Ordinarily, you've got to claim the person as a dependent on your federal income tax return in order to claim a tax break for the money you spend on her care, said Judy A. Riggs, director of state and federal policy for the Alzheimer's Association, a group for patients and those who care for them. And normally there are several hurdles you must clear. One involves the person's income: If it's too high, you're out of luck.

But there's an important exception. When it comes to medical expenses, you don't have to clear the income hurdle in order to claim the patient as a dependent, said Phil Blumenkrantz, a spokesman for the Internal Revenue Service.

As long as you could otherwise claim the person with Alzheimer's as a dependent, you still can claim the medical expense, says Blumenkrantz.

To claim your sister as a dependent, she must be a U.S. citizen and you must provide more than half her total support in the calendar year for which you plan to claim the tax break.

It's this last hurdle - the "support" test - that may be most difficult, said Patricia A. Thompson, a former president of the Rhode Island Society of Certified Public Accountants.

But if you clear this and other hurdles, you may be eligible for a tax break for the money you spend on her care, said Thompson, who is also tax partner with Piccerelli Gilstein & Co. CPAs of Providence, R.I. Follow these steps:

You must "itemize" your deductions by listing them on a separate form (Schedule A); you can't just claim the "standard" deduction on your tax return.

You may claim only those unreimbursed expenses that exceed 7.5 percent of your adjusted gross income (AGI). Your AGI is generally your total income after certain "adjustments," such as the deduction for IRA contributions. (Find your AGI on the cover of your Form 1040, at the bottom.) So if you have $30,000 in AGI, you can claim only unreimbursed expenses that exceed $2,250.

If you get through this minefield, you're home free. By claiming a deduction, you reduce the amount of income you report to the IRS, cutting your tax. If you're in the 15 percent federal tax bracket, you can save $150 in tax for every $1,000 in expenses you claim.(If you can't clear all these obstacles, your sister may still be able to deduct costs for her care on her return, Riggs said.)

All this is tricky stuff. Consider seeking help from an accountant, enrolled agent or other professional.

I have a mutual fund that is not doing well, and I think I'm going to sell some shares and go into something else, and I know there'll be a loss. I thought you can take that loss against regular income, ordinary income; I didn't know that you also had to sell something and take a profit and use the loss that way.

In general, if you suffer a loss by selling shares of stock, mutual funds or other securities, you must first use the loss to offset any profit you make. If there's any loss left over, you may use up to $3,000 of it to offset ordinary income (such as wages). If there's still some loss remaining, carry it over to the next year and follow the same steps.

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