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What Tax Breaks for Seniors are Available with In Home Care?

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What Tax Breaks for Seniors are Available with In Home Care?

By F. Stephen Glass, Partner, Glass Law Group

Seniors get special tax breaks from IRS

Do you know about the special tax breaks that are available to many seniors for 2017 tax year?  Take a quick look at some of these special tax breaks: 

For example, if you are age 65 or older at the end of 2017 and you have a higher gross income threshold BEFORE you are required to file a return and if you do not itemize deductions, you are entitled to a higher standard deduction

Retirement Plan Distributions.  A substantial amount of a retiree’s income is often from retirement accounts. A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. A Roth IRA is an individual retirement plan that can be either an account or an annuity and features nondeductible contributions but tax-free distributions. A SIMPLE IRA is a tax-favored retirement plan that certain small employers and self-employed individuals can set up for the benefit of their employees. 

Individual Retirement Arrangements.  Distributions from a traditional IRA are generally taxable in the year you receive them. Exceptions: rollovers and tax-free withdrawals of contributions. 
Early distributions.  Early distributions are amounts distributed from your traditional IRA account or annuity before you are age 59½.  Early distributions of taxable amounts must be included in your gross income and are subject to an additional 10% tax. 

After age 59½ and before age 70½.   After reaching age 59½, distributions from your traditional IRA may be received without having to pay the 10% additional tax. 

Required distributions.  If you own a traditional IRA, you must receive the entire balance in your IRA or start receiving periodic distributions from your IRA by April 1 of the year following the year in which you reach age 70½. If distributions from your traditional IRA(s) are less than the required minimum distribution for the year, you be assessed a 50% excise tax for that year on the amount not distributed as required.

Pensions and Annuities. If you did not pay any part of the cost of your employee pension or annuity, and your employer didn't withhold part of its cost from your pay, the amounts you receive each year are fully taxable.  If you paid part of the cost of your pension or annuity contract, part of each annuity payment can be excluded from income. The rest of each payment is taxable. 

Survivors of Retirees.  Benefits from a joint and survivor annuity paid to a survivor of a retiree must be included in gross income in the same way the retiree would have included them.  

Military Retirement Pay.   Military retirement pay based on age or length of service is taxable. But certain military and government disability pensions that are based on a percentage of disability from active military service generally are not taxable. 

Veterans' Benefits.  Veterans' benefits paid by the Department of Veterans Affairs are not taxable. 

Sickness and Injury Benefits.  Any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer is taxable. If both your employer and you paid for the plan, only the amount you receive that is due to your employer's payments is taxable. If you paid the entire cost of an accident or health plan, any amounts you receive from the plan for personal injury or sickness are not taxable. 

Disability Pensions.  If you retired on disability, income from your disability pension under a plan that is paid for by your employer is taxable as wages until you reach minimum retirement age (varies with the year of your birth).

Long-Term Care Contracts.  Usually, long-term care insurance is treated like accident and health insurance contracts – the amounts you receive generally are excludable from income as amounts received for personal injury or sickness. 

Life Insurance Proceeds.  Life insurance proceeds paid to you because of the death of an insured person are not taxable -- even if the proceeds were paid under an accident or health insurance policy or an endowment contract.  

Sale of Home.  You may be able to exclude from income any gain up to $250,000 ($500,000 on a joint return) on the sale of your main home (the one you live in most of the time). Generally, if you can exclude all of the gain, you don't need to report the sale on your tax return. Even if you don't meet these requirements, you can still claim some exclusion when the home is sole due to a change in place of employment, health, or unforeseen circumstances. 

To claim this exclusion, you must meet the ownership and use tests. These tests generally require that during the 5-year period ending on the date of the sale, you must have:

Owned the home for at least 2 years (the ownership test), and
Used the home for at least 2 years (the use test) at any time within the 5-year period. It does not need to be a single block of time.
Exception to use test for individuals with a disability if, during the 5-year period before the sale of your home: 
- You become physically or mentally unable to care for yourself, and
- You owned and lived in your home as your main home for a total of at least 1 year.

If you qualify for the use test exception, you are considered to live in your home during any time that you own the home and live in a facility (including a nursing home) licensed to care for disabled persons.  The 2-out-of-5-year ownership test must be met to claim the exclusion. 

Social security benefits.  The Social Security Administration provides benefits such as old‐age benefits, benefits to disabled workers, and benefits to spouses and dependents. These may be subject to federal income tax depending on your filing status and other income. However, supplemental security income (SSI) benefits and lump‐sum death benefits (one‐time payment to spouse and children of deceased) are not taxable.

Medical and Dental Expenses.  You can deduct certain medical and dental expenses you paid for yourself, your spouse, and your dependent(s) if you itemize your deductions AND your medical and dental expenses that are more than 7.5% of your adjusted gross income.

Home Improvements.  You can include in medical expenses amounts you pay for home improvements if their main purpose is medical care for you, your spouse, or your dependent. Only reasonable costs to improve a home for your disabled condition (or that of your spouse or your dependent(s) who live with you) are considered medical care. Costs for personal motives, i.e., architectural or aesthetic reasons, are not medical expenses. 

Terminally or Chronically-Ill Defined.  A terminally ill person is one who has been certified by a physician as having an illness or physical condition that reasonably can be expected to result in death within 24 months from the date of the certification. A chronically ill person is one who is not terminally ill but, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions

Unable to perform at least two activities of daily living -- eating, toileting, transferring, bathing, dressing, and continence -- without substantial assistance from another individual for at least 90 days due to a loss of functional capacity. 
Requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Nursing home.  The cost of medical care, including the cost of meals and lodging in a nursing home or a home for the aged for yourself, your spouse, or your dependent(s) can be included as medical expenses.

Nursing Services.  Medical expenses include wages and other amounts you pay for “nursing services.” The services need not be performed by a nurse if the services are of a kind generally performed by a nurse, such as giving medication or changing dressings, as well as bathing and grooming the patient in your home or another care facility.

Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services.

Credit for the Elderly or Disabled.  By claiming the credit for the elderly or disabled you may reduce your income tax and you may also be able to increase your refund by claiming the earned income credit.  A credit ranging between $3,750 and $7,500 is available to those:

aged 65 or older or retired on permanent and total disability and received taxable disability income for the tax year; and
with an adjusted gross income or the total of nontaxable Social Security, pensions annuities or disability income under specific limits.

These tax breaks for seniors are presented in summary form.  Contact your professional tax advisor for details.


F. Stephen Glass is a partner of Glass Law Group based in Cary, North Carolina. In 2016, he was featured as a Top Rated Lawyer in Business Law by The American Lawyer, The National Law Journal and Corporate Counsel publications.  

The group specializes in Estates, Trusts, and Business Law with a focus on helping the community in Cary, stemming from their core values and their passion for ensuring the best possible outcome for their clients.

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