More than 700,000 seniors live in thousands of assisted living facilities throughout the U.S., says a recent study from the Centers for Disease Control ad Prevention (CDC). And nearly 87 percent of residents pay for these facilities out of their own and their families’ financial resources. The good news is that seniors and caregivers may be eligible for tax deductions for assisted living costs that are related to medical or dental expenses.
If a loved one is receiving substantial medical care in assisted living and/or is in a special needs unit in a community, he or she may qualify for a tax deduction. This includes residents with Alzheimer’s or other forms of dementia who require substantial supervision to protect their health and safety.
For seniors residing in independent living communities, however, the only eligible deductible expenses would likely be those directly related to medical costs.
Qualifying for Assisted Living Deductions
Detailed record keeping throughout the year, even for related expenses like mileage to and from doctor visits, can add up to substantial writeoffs at tax time. First, the taxpayer must determine if he or she is entitled to itemize deductions. If the taxpayer is the senior, he or she can deduct qualified medical expenses. If the taxpayer is the caregiver, that caregiver must first find out if the senior qualifies as a dependent, depending on these IRS requirements:
- The person the caregiver is claiming as a dependent must be married to or related to the caregiver.
- The senior must be a citizen or resident of the United States or a resident of Canada or Mexico.
- The senior must not file a joint return.
- The senior must not have an annual gross income in excess of $3,950 (in 2015). Gross income does not include Social Security payments or other tax-exempt income. For those with incomes above $25,000, some portion of Social Security income may be includable in gross income.
- The caregiver must provide more than half of the support for the senior during the year.
Consult a tax professional to learn more. Also this website offers more information on dependency at: http://www.irs.gov/publications/p554/ch05.html.
Which Senior Living Expenses Can Be Deductible?
For assisted living expenses to be tax deductible, the resident must be considered “chronically ill.” A doctor or nurse needs to have certified that the resident either:
- Cannot perform at least two activities of daily living, such as eating, toileting, transferring, bath, dressing, or continence; or
- Requires supervision due to a cognitive impairment (such as Alzheimer’s disease or another form of dementia).
Who Can Qualify for the Deduction?
To qualify for the deduction, the senior’s personal care services need to be provided according to a plan of care prescribed by a licensed health care provider. This means a doctor, nurse or social worker must prepare a plan that outlines the specific daily services the resident receives.
Typically, only the medical components of assisted living costs are deductible and ordinary living costs like room and board are not. However, if the resident is chronically ill and the facility is acting primarily for medical care and the care is being performed according to a certified care plan, then the room and board may be considered part of the medical care and the cost may be deductible. Residents who are not chronically ill may still deduct the portion of their expenses that are attributable to medical care, including entrance or initiation fees.
Which Medical Expenses Can Be Deducted?
- Premiums paid for insurance policies that cover medical care are deductible, unless the premiums are paid with pretax dollars. Generally, the payroll tax paid for Medicare Part A is not deductible, but Medicare Part B premiums are deductible.
- Payments made for nursing services. An actual nurse does not need to perform the services as long as the services are those generally performed by a nurse.
- Medical fees from doctors, laboratories, assisted living residences, home health care and hospitals
- The cost of long-term care, including housing, food, and other personal costs, if the person is chronically ill.
- The cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. The amount included in medical expenses for lodging cannot be more than $50 for each night for each person.
- Home modifications costs such as wheelchair ramps, grab bars and handrails.
- The cost of dental treatment.
- The cost of travel to and from medical appointments.
- Personal care items, such as disposable briefs and foods for a special diet.
- Cost of prescription drugs.
- Entrance fees for assisted living.
- Room and board for assisted living if the resident is certified chronically ill by a healthcare professional and following a prescribed plan of care. Typically this means that they are unable to perform two activities od daily living (ADLs) or require supervision due to Alzheimer’s disease or other conditions.
To claim the deduction, the medical expenses have to be more than 10 percent of the resident’s adjusted gross income. (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) In addition, only medical expenses paid during the year can be deducted, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
For more information on what can and cannot be deducted for medical expenses see Publication 502 on the IRS Web site at http://www.irs.gov/pub/irs-pdf/p502.pdf and/or seek the advice of a tax professional.