Supporting a Parent? Check for Tax Breaks

June 26, 2007 — -- If your mom needs money for a new roof, you'll write her a check, right? And you won't even mention the time that she unfairly grounded you for sneaking into an R-rated movie, which was, by the way, your brother's idea. You'll help her out because she's your mom, and she deserves a dry house.But for some boomers, looking after Mom and Dad entails more than sending an occasional check for home repairs. According to an AARP study released Monday, nearly a quarter of unpaid caregivers say that caregiving is a financial hardship.

If you're supporting an elderly parent, you may qualify to claim that parent as a dependent on your tax return. For tax year 2007, claiming an additional personal exemption would reduce your taxable income by $3,400. But to claim this tax break, you must pass the following tests:

•Income. To qualify as a dependent, your parent's income can't exceed the amount of the personal exemption. For 2007, the cut-off is $3,400. In most instances, Social Security benefits aren't counted. But if your parent receives more than $3,400 from other sources, such as pension benefits, interest and dividends from investments, or withdrawals from retirement savings plans, you can't claim her as a dependent.

Francis Degen, an enrolled agent in Setauket, N.Y., says the income requirement prevents most taxpayers from claiming a parent as a dependent, because even a small pension will make the parent ineligible.

•Support. In addition to the income test, you must provide more than half a parent's costs for food, housing, medical care, transportation and other necessities, says Cynthia Jeanguenat, an enrolled agent in Virginia Beach. Even if all your mother's income is from Social Security, you can't claim her as a dependent unless you pay more than half her living expenses.

Your mom doesn't have to live with you to qualify as a dependent, as long as she meets the income test and you provide more than half her financial support, says Donna LeValley, a tax lawyer and spokeswoman for J.K. Lasser's Your Income Tax 2007. If your mother lives with you, you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to her support, LeValley says.