You may claim an elderly parent as a dependent on your income taxes, but certain stipulations must be met, in accordance with the provisions laid out by the Internal Revenue Service (IRS). For the 2008 tax year, you could deduct $3,500 from your taxable income, but your parent's income could not exceed this amount. Social Security income typically does not count toward the $3,500 threshold, but income derived from interest and dividends paid by stocks, bonds, savings accounts, etc. will all count. For future years, check with the IRS for any changes in the amount and other requirements; the deductible amount usually seems to increase in increments of $100 per year.

Stipulations

Any parent claimed as a dependent by a U.S. taxpayer must be either:

--  a U.S. citizen, national or resident, or

--  reside in either Mexico or Canada.

Your parent need not reside with you, but you must pay for more than 50% of your parent's living expenses, such as food, medical bills, and shelter. However, if you contribute toward the cost of paying for your parent to stay in an assisted living facility or nursing home, or to live independently, any of the costs you pay will count toward the IRS' 50% requirement. If your parent lives with you, deduct the fair market value of room and board, including utilities and other household expenses. Certain other expenses seem to fall into a sort of “gray area” - in some instances household items, furniture, and cars may count as deductible items, but in other situations these items are not deductible. Consult IRS publication 501, Exemptions, Standard Deduction, and Filing Information (www.irs.gov/pub/irs-pdf/p501.pdf), to determine your individual circumstances.

Sharing Expenses With Siblings

If you and your siblings each pay at least 10% toward the cost of supporting your parent, and your combined contributions total at least 50% of the parent's living expenses, you will be able to file a Multiple Support Declaration, IRS Form 2120 (www.irs.gov/pub/irs-pdf/f2120.pdf). If you file this declaration, only one sibling will be able to claim the $3,500 tax deduction. The other contributing siblings must waive their claim toward this deduction for the tax year in which the deduction is being claimed. The multiple support agreement does not have to be a permanent one. Siblings may choose to rotate the deduction from year to year, taking turns to be the one to file the claim.

Out of Pocket Expenses

Expenses that you pay out of pocket for the care of an elderly parent, such as the costs of home health care or day care, may qualify you to claim the credit for Child and Dependent Care Expenses (www.irs.gov/pub/irs-pdf/p503.pdf). In order to claim this credit for a dependent parent, your parent must be mentally or physically incapable of self-care and must have resided with you for more than half of the year for which you claim the credit. You must also be claiming the credit if this care is necessary in order for you to go to work. This credit can be for up to 35% of your qualifying expenses. The IRS warns that if you pay someone to come into your house to care for your elderly parent, you may need to withhold and pay that person's Medicare and Social Security as well as paying federal unemployment tax. Check IRS Publication 926, the Household Employer's Tax Guide (www.irs.gov/pub/irs-pdf/p926.pdf) for instructions on how to do so.

Claiming Medical Expenses

If your parent does not qualify as a dependent on the grounds of having an income in excess of the deductible amount, but you still contribute over 50% of that parent's living expenses, you may still be able to realize income tax savings by claiming your parent's medical expenses as deductions should they exceed 7.5% of your adjusted gross income. These expenses include not only prescription medicines, but also medical treatments, equipment such as hearing aids and wheelchairs, mental health care, and any premiums you may be paying for supplementary Medicare coverage. Long-term care insurance is also counted as a medical deduction, but the amount of the allowable deduction will be limited by the age of your parent.

If you need additional help determining your tax status as regards caring for your elderly parent, check with the American Association of Retired Persons (www.aarp.org/makeadifference/gettinghelp/articles/abouttaxaide.html). The AARP has a program called Tax Aide that offers free tax assistance, both online and at nearly 7,000 locations all over the U.S.