Households are a lot different than they used to be.
You might be supporting adult children and your parents (or in-laws) or both. There also might be people who aren’t related to you by blood or marriage living in your home. You could be supporting or helping to support someone who doesn’t live with you, such as a parent in a long-term care facility. There are other possible scenarios.
The out-of-pocket cost of providing support in these situations is reduced when you receive some tax breaks. Study the tax rules to determine if you qualify for some tax breaks or need to restructure the arrangements to qualify.
The first step is to qualify the individual as your dependent for tax purposes. There are several steps to the dependency test, and they can become confusing.
A person must be a “qualifying child” or “qualifying relative” to be a dependent. The phrases are in quotation marks, because in the tax code we don’t use the dictionary definitions of child and relative.
A qualifying child must be under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student during any five months of the calendar year. There is no age limit if the child is permanently and totally disabled. The child generally must have lived with you at least half the year.
Qualifying relative is a much broader term.
A number of relationships encompass qualifying relatives. These include your child (including adopted child), stepchild, foster child, and a descendant of any of them. Also a brother, sister, half brother, half sister, stepbrother, or stepsister can be a qualifying relative. Of course, your father, mother, grandparent, or other direct ancestor can qualify. So can a stepfather or stepmother, but not a foster parent. A son or daughter of your brother or sister or half brother or half sister can be a qualifying relative. A brother or sister of your mother or father also can be a qualifying relative.
Some in-laws also qualify: son-in-law, daughter-in-law, father-in-law, mother-inlaw, brother-in-law and sister-in-law.
Once a person is a relative under these rules, it continues after death or divorce.
Each of these relatives can be a dependent without having to live with you.
Any other person can be a qualifying relative if the person lives as a member of your household all year, the relationship doesn’t violate local law and the other tests of a dependent (discussed below) are met. A blood or marital connection isn’t required, which is why earlier I put qualifying relative in quotation marks.
A person is considered to a member of your household even after one or both of you is temporarily absent at times during the year because of special circumstances, such as illness, education, business, vacation, military service, or detention in a juvenile facility. A stay in a nursing home for an indefinite time to receive constant medical care might be considered a temporary absence.
To be claimed as a qualifying child or qualifying relative, a person must be a U.S. citizen, resident alien, or national.
Two other tests must be met for either a qualifying child or qualifying relative to qualify as your tax dependent.
First, the person’s gross income for the year must be less than the personal exemption amount, which was $4,050 for 2016 and 2017. Gross income includes all receipts of money, property, or services that isn’t exempt from tax. If the person owns a rental property, the gross rental income before deducting any expenses or depreciation counts toward the limit.
But tax-exempt income, including Social Security benefits, isn’t counted as gross income.
Second, you must provide more than half of the person’s total support for the year. You compare the amount you spent to support the person to any support the person received from other sources, including his or her own and government benefits.
The person’s own funds and income are considered only to the extent they actually are used for support items. For example, if a parent receives Social Security benefits but doesn’t use that money to pay for support, the Social Security benefits aren’t included as amounts spent for the parent’s support.
But tax-exempt income, savings and borrowed money are considered support when spent on support items. Likewise, money you borrow and spend on support counts as support you provided.
So, what counts as “support”? Not all money spent by a person or on the person’s behalf is considered support.
Support expenses are food, lodging, clothing, education, medical and dental care, recreation, transportation and similar necessities. If the person lives in your home rent free, the fair rental value of the lodging is support you provided. Expenses that benefit more than one member of the household are divided pro rata among members of the household.
Buying property and other capital items also is support for the year. If you buy the person furniture, a television, or other appliances, that counts as support provided by you. Likewise, if the person buys such things, that counts as support he or she provided.
There’s a special rule when more than one person helps support the relative. For example, you and your two siblings might each contribute to the support of your parents, though the parents live with you. No one is paying more than 50% of the support, but you and your siblings in aggregate do. You and your siblings can sign a multiple support agreement designating one of you to claim the parents as dependents. The person designated must provide at least 10% of the year’s support.
When you meet these requirements, you can claim the person as a dependent. More details about these rules are in IRS Publication 17, Your Federal Income Tax.
What might be even more valuable than claiming someone as a dependent, however, is to deduct medical expenses you pay for someone else. The good news is that the rules for deducting someone else’s medical expenses are a bit less strict than for claiming someone as a dependent.
To deduct medical expenses that you pay for someone else, the person generally must be your dependent. That is, the person must meet most of the rules to be a qualifying child or qualifying relative as we just discussed. The exception is the medical expenses still are deductible to you if the person would have qualified as a dependent except that he or she had gross income of $4,050 or more. You still must either provide more than half their total support or have a multiple support agreement.
You deduct only medical expenses you actually paid and that weren’t reimbursed by any other source. Also, the person must have qualified as your dependent either at the time the medical services were provided or when you paid the expenses.
Here’s an example of how these rules come together.
You and your three siblings each provide one-fourth of your mother’s support for the year. You have a multiple support agreement that designates you to claim her as a dependent. Under the arrangement, you paid all the medical expenses and your siblings reimbursed you for their shares. You claim a personal exemption for your mother and deduct one-fourth of the medical expenses on your tax return. Your siblings don’t deduct any of their contributions.
Notice that it doesn’t matter if your mother is living with you, in her own home, or in a long-term care facility. As long as you’re paying at least 10% of her support and have a multiple support agreement, you claim her as a dependent and deduct the medical expenses you pay. Also, the agreement can be changed each year to rotate who claims the deductions.
More details are in IRS Publication 502, Medical and Dental Expenses.