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Make Sure That Mother in Nursing Home Satisfies the IRS Test for Dependency

March 01, 1998|CARLA LAZZARESCHI

Q. I will be claiming my mother as a dependent when I file my tax return in April. She is 89 and lives in a nursing home. May I consider the medical expenses I pay on her behalf as a deductible expense? Must I then claim the interest and dividends she receives as my income?

--R.B.S.

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A. Assuming that your mother meets the Internal Revenue Service's test for dependency, you can consider any medical charges you pay on her behalf as deductible expenses to the extent that they exceed 7.5% of your adjusted gross income. By the way, this is the same threshold that the IRS imposes for the deductibility of all medical expenses.

Given that 7.5% requirement, you may want to determine what portion, if any, of the convalescent hospital charges you pay qualify as medical expenses. To the extent that such charges qualify as medical expenses and you pay them, they can be applied toward your total medical expense category.

Any taxable interest and dividends your mother received last year are considered her income and should be reported on her own tax return if they exceed $7,800, the reporting threshold for 1997. But if your mother files her own return, she won't qualify as your dependent because her income exceeded the maximum for an adult dependent. If the interest and dividends did not exceed the $7,800 limit, they don't have to be reported.

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Q. My wife does not work outside the home. We file a joint return. I understand that if our family income does not exceed the maximum allowed--it doesn't--we may each contribute $2,000 to a Roth individual retirement account this year. Would this be a $4,000 contribution to a single joint IRA or is it two separate accounts?

--B.A.

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A. So long as a couple's adjusted gross income does not exceed $150,000, both spouses, regardless of working status, may contribute up to $2,000 to Roth IRA accounts. But as with all IRAs, and as their very name implies, an IRA must be held by an individual.

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Q. I plan to move to Europe when I retire next year. Will I still have to pay federal and California taxes on my pension?

--H.P.

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A. Assuming that you do not want to renounce your U.S. citizenship, you must file a tax return with the IRS no matter where you retire in this world. The good news for you, as we mentioned a few weeks ago, is that the state of California is no longer permitted to tax the pension income of former residents whose earnings while in the state formed the basis of that pension.

This new law applies not only to former California residents who move to other states, but also to those who move out of the country.

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Q. When it comes time to withdraw funds tax-free from a Roth IRA, are those funds included in the IRS' calculations for the purposes of taxing Social Security benefits?

--C.A.L.

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A. As the law currently stands, these funds are not included in income calculations used to determine any taxing of Social Security benefits. However, as you know, in order for funds to be withdrawn tax-free from a Roth IRA, they must remain in the account for at least five years before being withdrawn for a qualified reason, such as retirement after age 59 1/2. But five years is a long time for any tax law to remain unchanged. So, for the time being, withdrawal of Roth IRA funds by a Social Security recipient does not affect any Social Security benefits.

Carla Lazzareschi will respond here to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi@latimes.com

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