Parents Supported By More Than One Child: Who Takes Deduction?
When brothers and sisters support a parent, plan things so that one of them can deduct the parent’s medical expenses. Here’s how:
File a multiple-support declaration (Form 2120). Where several people contribute, this form designates the one who can take the exemption. If they pay at least 10% each, but nobody gives as much as half, and one of them can take the exemption if the others agree. Each year a different member of the group can claim the exemption by changing the agreement.
Deduct Your Parents’ Medical Costs
You may be supporting your parents by giving them money regularly to pay their bills, including medical expenses.
Suppose you’re paying medical expenses for them and also providing half their support, but you can’t claim them as dependents because their gross income exceeds IRS limits. You may be able to deduct your parents’ medical expenses. The key is for you to pay these expenses directly. Of course, the amount you can deduct is subject to the limitations on your own medical-expense deductions.
John Ruch was able to deduct his mother’s medical bills, even though he paid them with money that she had given him. Court: Ruch had received the money through a legal and binding gift from his mother. Since the money was legally his when he paid, he was entitled to the deduction.
Shifting Capital Gains
Give appreciated securities to your parents instead of cash if you are supporting them. They can cash in the securities and pay tax on the appreciation in their low tax bracket. You’ll avoid paying tax in your high tax bracket.
Caution: A large gain could push your parents into a higher bracket. Of course, if you and your parents are in the same tax bracket, this ploy won’t help you (nor will it hurt).