How to qualify for elder care tax breaks

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Kimberly Lankford

Q: My mother, who’s in the early stages of dementia, has moved in with me. She will attend an adult day care program while I’m at work. Can I deduct any of the expense of her care?

A: You may be able to claim a dependent-care tax credit or set aside pretax dollars in a flexible spending account to pay for her care, as long as the expenses are necessary so that you (and your spouse, if you’re married) can continue to work.

To qualify for the tax credit, your mother must be physically or mentally unable to care for herself. The rules for claiming the dependent-care tax credit are less stringent than those for claiming a parent as a dependent.

That means even if your mother’s gross income exceeds $3,700 (the personal-exemption amount for 2011), you could still claim the dependent-care credit as long as you provide more than half of her support.

For most taxpayers, the dependent-care credit is worth 20 percent of the cost of care, up to $3,000 for one dependent ($6,000 for two or more). But your mother must live with you more than half of the year to qualify for the tax credit.

So if she moved in after June, you won’t be able to claim the dependent-care credit on your 2011 income tax return that you’ll file next year; you’ll have to wait to claim the credit on your 2012 return. For more information about the tax rules, see IRS Publication 503, Child and Dependent Care Expenses.

Flexible spending accounts

Your employer may offer a flexible spending account program (FSA), which allows you to set aside part of your salary tax free for use in caring for your mother.

If you are eligible for an FSA, ask whether you can make a midyear election to designate up to $5,000 to a dependent-care account for this year. If not, you can set up an FSA for 2012 during this year’s open-enrollment season.

The rules for dependent-care FSAs can vary by employer, but generally your mother would be eligible if she is physically or mentally incapable of caring for herself, she lives with you for more than half the year, and you provide more than half of her support.

“A practical example of an eligible expense might be the fees for a senior day care center for elders with Alzheimer’s — if, say, a parent lives with and is dependent on an adult child who works, and the parent goes to [an adult day care] center each day because the parent can’t be left alone,” said Jody Dietel, of WageWorks, which administers FSA plans for many large employers.

You must choose between the FSA and the tax credit; you can’t claim both for the same expense.

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