ad image
Get It Now!
Yikes, Tax season can be rough. Here are some tips to make next year easy.

Yikes, Tax season can be rough. Here are some tips to make next year easy.

As our parents age, they may find themselves with more than they need, financially, to live out their final years comfortably. As is mostly customary, they will probably want to give some away to you and/or your children. Conversely, if your parents are living on a shoestring budget, there are ways you can help them, and yourself, concurrently.

If your parents (or even you) own a home and are willing it at death, arranging for a living trust is highly recommended. This type of trust is revocable, which means you can change it any time while you are alive. This will protect your assets from going into probate when you die, which may cost your beneficiaries a lot of time, money, and legal loopholes.

Simply giving away your home (as a gift) is a lovely sentiment, but it may reap negative tax consequences. Your parents will have to file a gift-tax form, which won’t cost them, unless the home is worth more than $5.45 million. You won’t have to pay steep taxes on that gift if you live there for at least two years.

If you sell the home right away, however, you’ll have to pay capital gains tax on the property. (Total sale price minus the price your parents paid for the home = capital gains.) When you sell the house after the two-year period, you can exclude up to $250,000 of your capital gains.

For 2016, you may give or receive up to $14,000 in one year without it affecting your taxes. Your parents may give you and your children each up to that amount in gifts or cash. The same applies in reverse if your parents need help and you can contribute. The giver, however, may not write-off that gift as a deduction.

Financial assistance for your children’s education can be offered without tax penalty as well. If you pay for someone’s medical expenses, those costs can also be excluded. Both you and your spouse are allowed to collectively gift up to $28,000 during one fiscal year, just as your parents may collectively gift that to you.

If you provided more than half of your parent’s support during the year, you may be able to file them as a dependent on your tax return. You may be able to deduct the fair value of the space in which they are living (if it’s in your home), utilities, medical expenses as well as prescription costs. These deductions may give you a financial break on your taxes.

Hopefully some of the tips are applicable to your scenario. It’s important that we take care of the ones we love. If we can help ourselves financially during the process, all the better. Here’s to family.