Changes to Exemptions

In 2018, the Tax Cuts and Jobs Act eliminated the deduction for personal and dependent exemptions. The tax law almost doubled the previous standard deduction amounts. In 2020, the deduction amounts are $24,800 for married filing jointly, $12,400 for single filers, and $18,650 for heads of households, indexed for inflation. These changes expire at the end of 2025 unless Congress takes further action.

Supporting Your Parents

Growing numbers of Baby Boomers are supporting their parents. If you are among this group, you may qualify for some valuable tax breaks.

As part of the recent law eliminating dependent exemptions for 2018 through 2025, taxpayers will no longer be able to claim their parent as a dependent. However, the Tax Cuts and Jobs Act does allow for a new $500 nonrefundable credit for dependents who do not qualify for the child tax credit. Taxpayers can claim this for children who are too old for the child tax credit and for non-child dependents.

If you are single and a parent qualifies as your dependent, you may be able to file as "head of household" and receive the lower marginal tax rates and larger standard deduction of that filing status. You must pay more than 50% of the cost of maintaining the household in which your parent resides; however, you do not need to live in the same house.

If you pay qualified expenses for a parent who is physically or mentally incapable of self-care and you live in the same house, you may be able to claim a dependent care credit. To qualify, the care must be necessary in order for you to hold gainful employment, though the care can be received either inside or outside the home.

For most taxpayers, this credit is limited to 35% of the first $3,000 ($6,000 for two qualifying parents) of eligible expenses. If you provide more than half of their support for the year, you may also deduct medical expenses paid on behalf of your parents, even if they do not qualify as your dependents.