1. Dependency exemption. You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption. To qualify, (a) you must provide more than 50% of the individual's support costs, (b) the individual must either live with you or be related (so a parent in a nursing home would qualify), (c) the individual must not have gross income in excess of the exemption amount, which is $4,050 for both 2016 and 2017 (note social security income does not count towards the $4,050 limit), (d) the individual must not file a joint return for the year, and (e) the individual must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
If the support test ((a), above) can only be met by a group (several children, for example, combining to support a parent), a "multiple support" form can be filed to grant one of the group the exemption, subject to certain conditions.
2. Medical expenses. If the individual qualifies as your dependent, you can include any medical expenses you incur for the individual along with your own when determining your medical deduction. (Note Medical expenses are only deductible to the extent that exceed 10% of your adjusted gross income.) If the individual fails to qualify as your dependent only because of the gross income or joint return test ((c) and (d), above), you can still include these medical costs with your own.
Deductibility of amounts paid to the nursing home. Amounts paid to a nursing home are fully deductible as a medical expense if the person is staying at the nursing home principally for medical, rather than custodial, etc., care. If a person isn't in the nursing home principally to receive medical care, then only the portion of the fee that is allocable to actual medical care qualifies as a deductible medical expense. But if the individual is chronically ill, all of the individual's qualified long-term care services, including maintenance or personal care services, are deductible.
Qualified long-term care insurance premiums are includible as medical expenses up to the following dollar amounts: For individuals over 60 but not over 70 years old, the 2017 limit on deductible long-term care insurance premiums is $4,090 ($3,900 for 2016), and for those over 70, the 2017 limit is $5,110 ($4,870 for 2016).
Certain Home improvements may qualify as a medical expense if the main purpose is to provide medical benefit. For example exit ramps or railings in the house. The deduction is limited to the cost less the amount the fair market value of the property increases due to the improvement.
3. Filing status. If you aren't married, you may qualify for "head of household" status by virtue of the individual you're caring for. If (a) the person you're caring for lives in your household, (b) you cover more than half the household costs, (c) the person qualifies as your dependent, and (d) the person is a relative, you can claim head of household filing status. If the person you're caring for is your parent, the person need not live with you, as long as you provide more than half of the person's household costs and the person qualifies as your dependent. A head of household has a higher standard deduction and lower tax rates than a single filer.
4. Dependent care credit. If the cared-for individual qualifies as your dependent, lives with you, and physically or mentally cannot take care of him- or herself, you may qualify for the dependent care credit for costs you incur for the individual's care to enable you and your spouse to go to work.
5. Exclusion for payments under life insurance contracts. If your parent is terminally or chronically ill and is insured under a life insurance contract, he or she may be able to receive tax-free payments (accelerated death benefits or so-called "viatical" payments) while living. Any lifetime payments received under a life insurance contract on the life of a person who is either terminally or chronically ill are excluded from gross income. A similar exclusion applies to the sale or assignment of a life insurance contract to a person who regularly buys or takes assignments of such contracts and meets other qualifying standards. These lifetime payments could be used to help pay the costs of your parent's nursing home.