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VA Benefits for Caregiving: Tax implications

For several years, my elderly mother has required round-the-clock caregivers. I own the condo in which she lives rent-free, pay the condo monthly fee, and have paid several thousand dollars a month to her caregivers. Her only income is a small Social Security monthly payment and an even smaller VA widow's benefit. I have put her down on my tax returns as a "qualifying relative" dependent and hope I have been correct in doing so. Although I think the caregiving expenses may be deductible, I do not itemize and do not have the energy to start.

About 2 years ago, she applied to the VA for caregiving benefits. She just received a lump-sum amount from the VA which I assume is a retroactive payment of caregiving benefits. She is going to pay this amount to me, as partial payment for her caregiving expenses that I have incurred.

What are the tax implications for both of us? I am guessing that (1) she has to file a tax return for 2013 (which she has not been doing) and pay tax on the VA payment,(2) I cannot claim her as a dependent for 2013 because the VA payment is so large that I will not provide half of her support in 2013, and (3) I can no longer claim her as a dependent in future years if the VA caregiving benefits continue unless I continue to provide more than half of her support.

Thanks, Ed

Reply to
Trent-Lion
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  1. The benefits she receives from the VA are not taxable. Therefore, there is no requirement for her to file a tax return.
  2. Whether or not you can claim a dependency exemption for your mother has nothing to do with the size of the VA payment. It may depend upon how much of the payment was expended for her support. Your mother is your dependent if you provided more than half of her total support. You add up the amount of total support she required. As you are providing her lodging, you would use the fair rental value of the condo to determine the amount to be included for lodging in total support. Other items include food, utilities, household repairs, clothing, transportion, education, medical, dental, recreation and some other misc. items expended for her support. If you provided more than half, she is your dependent. There is a worksheet in IRS Pub 501 that you can use to determine total support. See Worksheet 2 on page 15.
  3. The determination for claiming her as a dependent is made for each tax year.
Reply to
Alan

I should have added, that if you make the determination that you did provide more than half of her total support, you may include the medical expenses that you paid for her on your Schedule A if you itemize.

Reply to
Alan

Will there be a recovery? Supposed the taxpayer who started this thread deducted the medical costs on his schedule A, and VA remibursed her for these payments, then the taxpayer would potentially have Line

21 other income to offset the deduction taken in the previous year. Of course, only medical expenses in excess of 7.5% of AGI (or 10% of AGI under AMT) are allowed, so most likely only none or part of the medical care would actually be recovered.
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