Top Senior Tax Deductions

Chris Hawkins Written by Chris Hawkins
SeniorLiving.Org Expert on Senior Care & Assisted Living

Seniors living on tight budgets can use every advantage they can get, especially when it comes to taxes. So don’t leave this money on the table. This is a starting point for the top tax deductions for seniors.

Top Senior Tax Deductions

Medical and Dental Expenses

The definition of medical and dental expenses, according to the IRS, includes: medical services, treatment, equipment, supplies, insurance premiums, transportation, long-term care, long-term care insurance and even stop smoking programs.

To see them in all their glory, visit IRS Publication 502.

Here are the basics to qualify:

You must itemize these expenses on Form 1040’s Schedule A. And you can only deduct expenses that are more than 7.5% of your adjusted gross income (AGI) from your 1040.

For example, an AGI of $40,000 x 7.5% is $3,000. If you had $5,500 in medical expenses, you can deduct $2,500 ($3,000 - $5,500). If your expenses were only $2,000, you’d be out of luck.

Long-Term Care: Nursing Homes, Assisted Living, etc.

If you, your spouse or a dependent are in a nursing home, assisted living facility or the like, you may be able to deduct some of the expense.

If you are in one of the facilities for medical reasons (most people are) you may deduct lodging, meals, medical expenses. Another deductable expense is what’s known as a life-care fee that a facility charges for continuing health care at the facility. This could be an upfront fee or a monthly fee and usually both.

See “Health Care Tax Deductions” for more detail. And you can always wade through the IRS’s Publication 502.

Credit for the Elderly or Disabled

This credit is based on age, income and filing status. Use Schedule R (Form 1040A or 1040) to complete. Here are the qualifications for this deduction:

  • You (or your spouse) are 65 and older or under 65 and retired on total and permanent disability.
  • Your income (AGI) is LESS than $17,500 for single filer; $20,000 married filing jointly and only one spouse qualifies; $25,000 married filing jointly and both qualify.
  • Your non-taxable Social Security (or other nontaxable pensions, annuities, disability) is less than $5,000 for single filer; $5,000 married filing jointly and on only one spouse qualifies; $7,500 married filing jointly and both qualify.

See IRS Publication 524 for detailed examples.

Selling Your Home

Did you downsize? Move in to an independent living community, assisted living or nursing home? If you sold your home, you can “exclude from income any gain up $250,000 ($500,000 on a joint return in most cases) on the sale of your main home,” according to the IRS’s “Senior Tax Guide.”

Here are the qualifications:

  • Your main can be a house, houseboat, mobile home, cooperative apartment or condominium.
  • You must have owned AND lived in the home for at least two years. (there are some exceptions—see below)
  • During those two years ending on the date of the sale, you did not exclude gain from the sale of another home.

Exception: During the 5-year period before you sell your home, if 1) you became physically or mentally unable to care for yourself and 2) you owned and lived in your home for at least one year, you can still exclude up to $250,000.

For example, you lived in your home for a year then lived in a nursing home for the next four years before selling your house.

Generally, to calculate your selling profit:

Selling price, minus closing costs such as points, prepaid interest, selling costs, prorated property taxes (you cannot include mortgage insurance, notary, escrow, appraisal, et al), and the property’s tax basis.

Selling costs include broker’s fees, advertising costs, improvements you made to the property for selling purposes as long as it was 90 days prior to the sale.

Standard Deduction

If you’re not itemizing the above deductions (and others not listed) or the total of your itemized deductions is less than the standard deduction, take the standard deduction.

  • You must be 65 or older.
  • If you’re blind or partially blind (cannot see better than 20/200 in the better eye and your field of vision is not more than 20 degrees), you’re entitled to a higher deduction.

These deductions are adjusted every year for inflation. Currently, they are:

  • Single or married filing separately $5,800
  • Married filing jointly or qualified widow(er) $11,600
  • Add $1,150 ($1,450 if single or head of household) for 65 and over and/or blindness qualification

Summary

This is just a starting point for tax deductions for seniors. You can find a more detailed discussion on Health Care Tax Deductions. And if you are a caregiver for an elderly spouse, check out “Caregivers and Tax Credits.”

And for really detailed stimulation, there’s always IRS Publications 502, 524, and 554. You might be surprised at what qualifies for a medical deduction.

Finally, your local tax professional should be able to give advice and translate the many rules in these publications.

Updated: Jun 07, 2012

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