It’s not unusual for adult children to support their parents as they age. If you’re in this position or could be in the near future, you might qualify for the adult-dependent exemption.

Qualifications for Claiming a Parent as Your Dependent
This exemption allows eligible taxpayers to deduct up to $4,050 for an adult dependent claimed on their tax return. To qualify for the adult-dependent exemption, your parent must have less gross income for the tax year than the exemption amount. Some exceptions may apply if your parent is permanently and totally disabled. Social Security is generally excluded from the estimation, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than half of your parent’s financial support. If you shared caregiving with a sibling and your combined support exceeded 50%, the exemption can be claimed despite no one individually providing more than 50%. However, only one of you can claim the adult-dependent exemption.

Factors to Consider
Even though Social Security payments are usually excluded from the adult dependent’s income, it can still affect your ability to qualify. If your parent is using Social Security payments to pay for medicine or other expenses, you may not meet the 50% test.

But don’t forget about the living situation. If your parent currently lives with you, the amount of support you claim under 50% can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any financial support you contribute to the housing expense counts toward the 50% test.

Easing the Financial Burden of Caregiving
Sometimes caregivers fall just short of qualifying for the exemption. If this happens, you may still be able to claim an itemized deduction for the medical expenses that you pay for your parent. To receive a tax benefit, the combined medical expenses paid for you, your dependents, and your parent must exceed 10% of your adjusted gross income.

The adult-dependent exemption is just one tax break you may be able to employ to ease the financial burden of caring for an elderly parent. Contact your advisor for more information on qualifying for this tax break or others.