What are the tax implications for payment from a parent living in my home?

Asked by

My mother lives with me & I am her total care giver 24/7, for which she pays me well, (at her instance ) as an alternative to a nursing home. I take care of all expenses with the exception of her medical needs, for which she has insurance.
She is legally blind, has limited hearing & uses a walker. Originally her payment to me was at the "gifting limit" but as she now requires more help she has raised the amount (again at her instance). Do I have to declare it as income & can I deduct the gifting allowance from the reported amount? And can she declare it on her tax return as an expense?

Answers 1 to 10 of 22
My sister has POA, she is the executor of her will.
There is a right way and a wrong way to do this. Since you're not a senator I suggest you file taxes the right way and you both will be better off. She can deduct for expenses but it is for you an income that needs to be declared. Tax consultants are popular these days and aren't overly expensive.
Most folks try to avoid exceeding the gifting limit, because it can trigger a cascade of tax implications. If you have a friend or family member with good tax accounting knowledge, they might speak to you off the record.
Since she is living in your home, I doubt that her payments to you could be considered a medical expense for her, and therefore deductible (with limits) on her tax return. You can search "medical expenses" at the IRS website irs.gov to see if there is anything in her care that could be considered. One way for her to pay you more than the gifting limit would be for her to pay you room and board in addition to gifting the limit. You should talk to your tax advisor to see if you would need to treat some of this as rental income to you, which would impact your taxes now, and later when you sell your home. There are other exceptions to the gifting limit, such as paying college tuition or medical expenses for another person.

Many people do not understand how the gift tax works. If your mother gifts more than the annual limit, she needs to report the excess gifts with her return, (Form 709) but there is no tax due at that time unless she has already gifted more than the estate exclusion, which for 2013 was $5,250,000. If, at her death, her total excess gifts, plus her remaining estate, exceeds the current estate exclusion, there would be estate taxes due. Most estates fall far under this amount. The irs keeps track of your mom's lifetime gifts reported on form 709. You can find statistics on gift tax returns on the irs website, and they usually show that more than 90% of reported gifts are not subject to tax. You can find information about how the irs calculates and keep track of gifts in Publication 559 on the website.

Of course, you also need to consider the future impact of these gifts on your mom's eligibility for Medicaid. If you think that there is any chance that your mom will need Medicaid in the future, especially within the next five years following a gift, you should talk to an attorney about writing a contract so that the payments are for a service and not a gift. Unfortunately, this would make them income to you.
Boy, that "gifting limit" is $10,000/yr the last I checked. If you are getting any more, then declare it under Misc. Income. Since she is "gifting" you money, she can't turn around and declare it as an expense. Check with the IRS to be sure.
Effective January 1, 2013 you can gift up to $14,000 without paying as gift tax. This information is coming from the Irs.gov site.
If I were you, I'd ask an accountant who is familiar with elder care and the Dependency Line on Form 1040.
I doubt that your care of her can be considered a Medical Expense.... Line 1 on Schedule A. If she is legally blind, the Standard Deduction is quite generous, on HER Return, particularly if she has a spouse who is also legally blind, and over 65..
Forget about the "Gift Tax". It's a tax that she should not have to pay. Her check to you is not a "gift", and could be questioned by the IRS.
The $5,250,000 is not applicable until AFTER her death. She probably will not meet this exclusion. (It will be higher in 2014).
What is the purpose of your question? If it's Dependency, then you can claim her on your Return if you supply over 50% of her support. Then you can claim her as a Dependent. This is the only allowance that I can see that is both legal and beneficial to you both. I am not a Tax Accountant.
WOW! At $14,000 per year, I would like to be her daughter too! I cannot believe she eats more than $1166/mth in food, and the rest of the care should be done willingly out of love, not profit. Consider yourself very fortunate...
ferris, I agree totally! My sister took advantage of my father this way. Charged him $875.00 a month rent, plus $200.00 a month for food! It was no gift and she never claimed it on her taxes.
There are four tests that much be met in order for a person to be a qualifying relative and therefore able to be claimed as your dependent. One of these is the gross income test. If your mother has gross income of more that $3,900 (this is for 2013, it goes up a little each year), then she cannot be claimed as anyone's dependent, even though she may meet the other three tests. Gross income includes interest and non tax-exempt social security benefits, so most people become ineligible on SS income alone. Another test is that you must provide more than half of her support, or be part of a multiple support agreement in which (1)you provide at least 10% of her support,(2) all of the participants together provide more than 50% of her support, and (3)the participants agree that you can claim the exemption for her.

Mom's payments to you are either gifts, room and board or payment for services. Gifts, sales, rent and wages each have laws to govern how they are treated for tax purposes.

I stand by my earlier statement that gift tax does not need to be paid until total lifetime taxable gifts exceed $5,250,000 or unless, after death, the total lifetime taxable gifts and estate value exceed that amount. Please, people, look this stuff up on the irs website. This is explained in Publication 559. Tax laws and limits change frequently.

Share your answer

Please enter your Answer

Ask a Question

Reach thousands of elder care experts and family caregivers
Get answers in 10 minutes or less
Receive personalized caregiving advice and support