If You’re a Live-In Caregiver, These Are the Tax Breaks You’re Likely Missing Out On

Multigenerational living is at an all-time high.

In fact, the most recent Profile of Home Buyers and Sellers report by the National Association of Realtors® found that 17% of homes purchased over the past year were multigenerational households.

If you’re part of one and serve as a live-in caregiver, you’ll be pleased to learn there are tax breaks you can claim to help cover everyday living expenses and home improvements. 

“From what I’m seeing with clients, multigenerational living is becoming much more common as families balance housing costs with caregiving responsibilities,” says Kyle Paxton, CPA and real estate director at James Moore & Co. in Tallahassee, FL.

This trend often changes how families think about financial planning.

“There can be opportunities to structure expenses and caregiving support in a way that aligns with existing tax rules,” adds Paxton.

The intersection of multigenerational living and homeownership

While multigenerational homeownership is one of the most cost-effective housing solutions, it presents issues of tax complexity that most homeowners get wrong. 

When you offer affordable housing for an elderly parent or relative, you assume expenses that they would otherwise bear themselves. 

“This represents a substantial financial cost—property taxes won’t be reduced due to the presence of a parent, and insurance, utilities, and other costs will inevitably increase,” says Cody Schuiteboer, CEO of Best Interest Financial in Detroit.

That’s where tax codes can step in and provide generous benefits.

“I have assisted homeowners that realized they can claim tax benefits of $4,000 to $8,000 annually due to the care they provide to members of their household,” Schuiteboer explains.

This tax recovery is major. It fundamentally shifts the paradigm on multigenerational living from financially overwhelming to truly manageable.

Tax credits for live-in caregivers

There are a few noteworthy tax credits you can leverage as a live-in caregiver.

The Credit for Other Dependents, for example, is a $500 nonrefundable credit designed for families who claim an aging parent as a dependent. 

To qualify, your parent must be a U.S. citizen or legal resident, earn an adjusted gross income (AGI) of less than $5,050 per year, and receive more than half of their financial support from you—the adult child or caregiver.

“Caregivers in the live-in parent category trigger a tax liability reduction of $500, which is $700 for those in the 22% tax bracket. If you don’t claim this credit for 10 years, you’ll be missing out on a staggering $5,000 to $7,000,” says Schuiteboer.

There’s also the medical expense deduction. As a caregiver, you can deduct medical expenses for a dependent relative as long as they exceed 7.5% of your family's AGI.

Many accessibility improvements such as wheelchair ramps, stair lifts, grab bars, walk-in showers, and even widened doorways can qualify as deductible medical expenses.

“I have worked with clients on modifications to bathrooms for $15,000. This was fully deductible as medical expense because the parent had documented mobility limitations. For such a modification-qualified medical expense, a standard tax bracket yields tax savings of $3,300 to $3,900, which means the modification's net cost is reduced to $11,100 to $11,700,” adds Schuiteboer.

Applying tax savings toward meaningful home upgrades

When families capture tax savings from credits or medical deductions, those resources can often be reinvested into improvements that make the home safer and more functional for long-term care.

“If live-in caregivers claim tax benefits in the range of $5,000 to $8,000 a year, there will finally be realistic funding available to do accessibility upgrades, which would otherwise remain financially unattainable,” says Schuiteboer.

Schuiteboer collaborated with a caregiver, named Teddi, who was assisting her elderly mother with mobility and arthritic challenges. While Teddi placed a basic ramp for her mother, she did not undertake other modifications due to cost concerns. 

“When we analyzed her tax position, we determined that she was eligible for roughly $6,200 in tax benefits from dependent credits, medical expense deductions, and other provisions. Teddi used her tax refund to place grab bars, make her mother’s bedroom bath accessible with a roll-in shower, and to widen doorways for her mother’s walker,” explains Schuiteboer.

Those modifications cost approximately $8,500, and tax recovery made Teddi’s out-of-pocket expense about $2,300 after insurance and other subsidized funding. Teddi, not realizing her tax benefits, would have had to forgo those modifications, which would have increasingly endangered her mother’s safety and compromised her independence.

The moral of the story? By claiming all of the tax breaks available to you, you can fund the modifications that most improve the safety and independence of your aging loved one.