Tax and Financial Ramifications of Helping Parents

[joesxm3]

As you can see from my other thread, I will probably be getting involved with helping my parents to move to some sort of elderly-friendly living situation and since they are living on SS with no savings I will probably end up paying for some of it.

I have been giving them some money to cover their major expenses like taxes and oil. I recently paid for dentures for mom and dental maintenance for dad.

I know that there is some sort of "give tax" that has an annual limit of $15K per person, so I guess I can give them $30K if I have to without getting into any tax trouble.

If I were to buy a house and let them live in it, is there any danger that the lack of rent would be considered some sort of constructive gifting for tax purposes.

If I pay for medical, dental or home care services is that considered giving them a gift that would count against the annual gift tax limit?

I can't include medical or dental payments for their care in my medical expense deduction on my tax return, right?

I seem to remember something about being able to count them as a dependent on my tax return if I am providing more than half of their support. At the time I figured that with their SS I was not giving enough so I did not pursue looking into that.

If I were to agree to pay for some of their first couple of years in an assisted living facility in order to get them in with the plan of eventually switching to Medicaid, is that possible or feasible? That would be much more than the gift tax limit. Would there be some tax implications?

I know some of this might be detailed and I should not rely on random answers. I suppose I should get with an elder law attorney and a tax guy to be sure. I have made tentative plans to talk to a lawyer who attends my church to get some general advice. He does not specialize in these areas, but he seems like a decent man and I feel comfortable getting his advice.

Well, you get the gist of what I am asking. Any advice will be appreciated.

Thanks.

Joe

 

[marko]

I'll wait for someone more expert to chime in but outside of claiming them as dependents (I would not do that) I wouldn't worry about it.

AFAIK, there is no gift limit; you can gift as much as you want but more of matter of if you need to report it or not if over the $14K limit. I doubt hand-outs to relatives falls into that category; mostly I suspect it's about large outright cash transfers.

Again, wait for more expert advice which is sure to follow.

 

[pb4uski]

Joe, if you are married you can give each parent $15k and your DW can give each parent $15k for a total of $60k a year. If you are single then you are right the annual limit is $30k ($15k to mom and $15k to dad).

Beyond those amounts, gift tax filings are required but there is no tax.... but the gifts count against your estate tax exemption of $5.4 million.

While technically if you buy a house and let them live in it rent-free it might be a constructive gift, I wouldn't fret about that at all.

 

[cathy63]

You can give them as much money as you want/need to in any year. If you give either one of them more than $15K in a year, then you will have to file a gift tax return to report the excess, but you will not owe any tax to the IRS, it's just a reporting mechanism. All the examples you listed above are indeed gifts.

When you die, your estate's executor will take your gift tax returns and subtract the total excess amounts you've given over the years from $11.4M or whatever the limit is at that time. Your estate will then have to pay the estate tax on any amount you have left over that number.

If your parents become your dependents for tax purposes, then their medical expenses are deductible on your tax returns.

 

[Teacher Terry]

Nursing homes may take Medicaid but I have never heard of a assisted living place taking it. The homes that do take Medicaid usually require you pay for at least a year. When I placed my friend in a home I made sure they would keep her. Once her level of care went up the price doubled. If your dad was a veteran he may be entitled to assistance depending on length of service, any service related disabilities and if he served in war time.

 

[cathy63]

Joe, if you are married you can give each parent $15k and your DW can give each parent $15k for a total of $60k a year. If you are single then you are right the annual limit is $30k ($15k to mom and $15k to dad).

Beyond those amounts, gift tax filings are required but there is no tax.... but the gifts count against your estate tax exemption of $5.4 million.

While technically if you buy a house and let them live in it rent-free it might be a constructive gift, I wouldn't fret about that at all.

The exemption is $11.4M for 2019 due to the Tax Cuts and Jobs Act.

 

[pb4uski]

But isn't the $11.4 million for a couple?

 

[cathy63]

But isn't the $11.4 million for a couple?

https://www.taxpolicycenter.org/taxvox/fixing-tcja-restoring-estate-taxs-exemption-levels

The Tax Cuts and Jobs Act (TCJA) dramatically (but temporarily) increased the exemption level of the estate, gift and generation skipping tax, cutting the number of taxpayers affected by the tax by over two-thirds while reducing revenues by $83 billion over the next decade. As a result, an unmarried person could shield $11.4 million of the value of an estate from the tax in 2019—up from $5.5 million in 2017. Married couples can protect double that amount—$22.8 million in 2019, up from $11.1 million in 2017.

 

[audreyh1]

But isn't the $11.4 million for a couple?

No, for an individual.

 

[pb4uski]

https://www.taxpolicycenter.org/taxvox/fixing-tcja-restoring-estate-taxs-exemption-levels

cool.

 

[audreyh1]

If I pay for medical, dental or home care services is that considered giving them a gift that would count against the annual gift tax limit?

I can't include medical or dental payments for their care in my medical expense deduction on my tax return, right?

Joe

According to this article, paying for a parent’s medical bills directly does not count against the $15K annual limit.

https://budgeting.thenest.com/taxes-paying-family-members-medical-bill-30720.html

Gift Taxes
If you pay the medical bills directly, such as writing a check to the hospital on your family member's behalf, you don't have to worry about gift tax, or even using up your annual gift tax exclusion for the person, because money paid directly for medical bills is excluded. However, if you give the money to the family member and then the family member uses it to pay bills, that does count as a gift.

I’m glad I found it, because I thought that was an exception. I’m pretty sure dental expenses are included in medical as are any vision related expenses.

You really do need to review your list with a CPA to let them advise you. None of your gifts should affect their Medicaid eligibility.

 

[youbet]

According to this article, paying for a parent’s medical bills directly does not count against the $15K annual limit.

https://budgeting.thenest.com/taxes-paying-family-members-medical-bill-30720.html



I’m glad I found it, because I thought that was an exception. I’m pretty sure dental expenses are included in medical as are any vision related expenses.

You really do need to review your list with a CPA to let them advise you. None of your gifts should affect their Medicaid eligibility.

When MIL was still alive, we were advised that when paying some of her medical and dental bills, it was a good idea to write the check directly to the medical practice and not to MIL.

+1 on involving a tax expert and I'd add a elder-law attorney as well. Depending on the state, qualifying for Medicaid can be fraught with unforeseen details and complications.

 

[gerntz]

With all your issues & questions, I think a sit down with an elder expert lawyer is appropriate.

 

[Bongleur]

Putting their bills on your own bank account, if possible on auto-pay, would simplify life. If needed for tax accounting, open an account just for doing that. It its more than the yearly gift limit, then you file the IRS form.

 

[bingybear]

The tax and jobs act did temporarily jump the unified exclusion. But I'm not sure I would bank on it. What counts is not the rules in which you gift, but when you die. So when the jobs and tax act sunsets the estate exclusion (if not changed other wise) or if the law tightens even more, you beneficiaries may have much less to divide up.

I would be aware the the estate limits can change downward and it is the of gift tax filed earlier is the first to use up the estate tally.