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Can I deduct medical costs paid for Mom?

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in Small Business Tax

Question: My elderly mother needs help a few hours a day to shop, work around the house, etc. My wife and I live in another state. We pay a neighborhood woman $15 an hour for assistance, but she isn't a nurse. We also pay $500 a month toward my mother's rent, about half the bill. Are we entitled to any tax benefits? – R.P., Vermont

Answer: You may qualify for a dependency exemption, a medical-expense deduction or both. Here's the deal:

Dependency exemption. You can typically claim a relative as your dependent if (1) you provide more than half of his or her support and (2) the dependent's gross income doesn't exceed the personal exemption amount ($3,100 for 2004). The "support" you provide—rent and medical assistance—does qualify. Just make sure you provide more than half her support. You may not qualify because of the "gross income" part of the test; run those numbers yourself.

Medical deduction. You can deduct medical expenses paid for a relative as long as you provide more than half of that person's support, whether or not you can also claim that person as your dependent. The gross-income test doesn't apply here. And while the caretaker doesn't need to be a registered nurse, you can only deduct expenses attributable to nursing care.

Remember, you can deduct medical expenses only after they exceed 7.5 percent of AGI.

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