Is Assisted Living Tax Deductible?

As tax season approaches, many of our readers have been inquiring about potential tax breaks for assisted living residents. Navigating the complex world of taxes can be daunting, especially when it involves understanding the specific deductions and credits available for those residing in assisted living facilities.

Seniorly is here to shed light on the various tax advantages that may help alleviate some of the financial burdens associated with assisted living expenses, ensuring you or your loved ones are well-informed and prepared to maximize your returns this tax season.

Assisted living costs: what is tax deductible?

Assisted living expenses can offer some tax relief under certain conditions. But here's the catch: these expenses must be for only the medical component of care, or related to a diagnosed chronic illness where the resident requires substantial assistance with daily activities. Furthermore, they must total more than 7.5% of the resident's adjusted gross income. Wondering what kind of expenses can be itemized? Here's a breakdown of what might be deductible:

• Medical expenses: Eligible medical expenses, including treatments, medications, and health care services provided within the assisted living facility, are tax-deductible. These must be primarily for the alleviation or prevention of a physical or mental illness or condition.
• Personal care services: If personal care services are required for a resident who is chronically ill and these services are provided pursuant to a plan of care prescribed by a healthcare professional, they may be deductible. This includes assistance with activities of daily living such as bathing, dressing, and eating. However, the resident must be able to demonstrate need for at least two or more ADLs for a period of more than 90 days. In general, a doctor must attest in writing to this ADL requirement and will require itemization on IRS Schedule A.
• Long-Term Care Insurance Premiums: Premiums paid for a qualified long-term care insurance policy are deductible, subject to age-related limits on the amount. This insurance must cover only long-term care services and be medically necessary.
• Room and Board: Portions of the room and board may be deductible if the primary reason for being in the facility is to receive medical care. The deduction is limited to the portion of the cost that is directly related to the provision of medical care.

These deductions are subject to various limitations and thresholds, such as the requirement that total medical expenses exceed 7.5% of adjusted gross income (AGI) to be deductible. Always consult a tax professional to understand how these rules apply to your specific situation and to ensure compliance with current tax laws.

Alzheimer's, dementia and chronic illnesses

Individuals receiving care for Alzheimer's, dementia or any other cognitive impairment may qualify for special tax deductions due to the nature of their conditions, which are generally recognized as a chronic illnesses by the Internal Revenue Service (IRS).

Since these conditions typically require substantial supervision and assistance with daily activities due to cognitive impairment, the costs associated with their care can often be deductible. This includes expenses for medical care, treatments directly related to managing the condition, personal care services that assist with activities of daily living (such as bathing, dressing, and eating), and possibly room and board if the primary reason for residence in a care facility is to receive medical care.

Additionally, costs related to safety measures and modifications made to the home to prevent injury can also be considered. To take advantage of these deductions, the care must be prescribed by a healthcare professional and meet certain IRS requirements. And just a reminder - as a general rule of thumb, it's always good to keep detailed records of all expenses and consult with a tax professional to ensure they are maximizing their tax benefits under current laws.

Can caregivers claim tax deductions for care expenses?

If you're an adult child who is financially supporting a parent or other loved one, then you fall into the category of "caregiver" - whether you see yourself that way or not! Caregivers can indeed take a medical expense deduction for costs associated with assisted living for someone else, provided certain conditions are met. After all, if a family member's total support is being financed in part by you, then you just may have an opportunity to get some of that back.

If the caregiver is financially supporting the individual in assisted living and can claim them as a dependent on their tax return, then the expenses related to medical care, including portions of assisted living costs that are attributable to medical or nursing care, may be deductible. This includes expenses for treatments, medications, and potentially even a portion of the room and board if the primary reason for the individual's stay in the facility is for medical care. Again, much like the requirement for individual tax deductions, dependent tax deductions also require that medical expenses exceed 7.5% of the caregiver's adjusted gross income (AGI) to qualify for deduction.

Additionally, the caregiver must ensure that the person being cared for qualifies as a dependent either by being a relative or by living with the caregiver all year as a member of the household. It's essential for caregivers to maintain detailed records of all expenses and consult with a tax professional to ensure they meet IRS guidelines and maximize their eligible deductions.The adjusted gross income provision

Examples of deductible and non deductible expenses

Deductible Assisted Living Expenses

The IRS allows taxpayers to deduct certain medical expenses, including some costs associated with assisted living, primarily if they are related to medical care. These can include:

• Medical Care Services: This covers expenses paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any structure or function of the body. If an assisted living resident requires regular medical care, these expenses can be deductible.
• Long-Term Care Services: If the resident is chronically ill (as certified by a healthcare practitioner) and the services are part of a plan of care, costs related to long-term care, including nursing services, physical therapy, and other medical services, can be deductible.
• Prescription Drugs and Health Care Supplies: Costs for prescription medications and health care supplies needed for a resident's health and well-being can be deductible.
• Entrance Fees for Assisted Living Facilities: A portion of the initial fee paid upon moving into an assisted living facility may be deductible if it's allocated for medical care or is refundable upon the resident's death.

Non-Deductible Assisted Living Expenses

However, not all expenses associated with assisted living are deductible. Non-deductible expenses typically include:

• Room and Board: The basic cost of living in an assisted living facility, including rent, meals, and utilities, is generally not deductible unless it is a necessary part of receiving medical care.
• Personal Care Services: Expenses for services that are primarily for personal comfort, such as assistance with fewer than two activities of daily living (bathing, dressing, eating) when not related to medical care or the treatment of a chronic condition, are not deductible.
• Non-Prescription Drugs and Health Care Supplies: Costs for over-the-counter medications and health supplies that are not prescribed by a healthcare professional are not deductible.

Can I claim my parent as a dependent?

To have a parent qualify as a dependent on your tax return, you must meet certain criteria set by the Internal Revenue Service (IRS). Here's a simplified breakdown of the requirements:

• Support Test: You must provide more than half of your parent's total support for the year. This includes costs related to housing, food, medical care, transportation, and other necessities.
• Gross Income Test: For 2023, your parent's gross income must be less than $4,700 (excluding Social Security and other tax-exempt income under certain conditions), while for 2024 the limit increases to $5,050. This threshold can change, so it's important to verify the current year's limit.
• Joint Return Test: Your parent cannot file a joint tax return with another person except to claim a refund of withheld or estimated taxes.
• Citizenship or Residency Test: Your parent must be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico.
• Member of Household or Relationship Test: While your parent doesn’t need to live with you, they must be related to you. If they don’t live with you, you must prove that you provide more than half of their support and that they meet the other qualifying relative criteria.

Meeting these criteria allows you to claim your parent as a dependent, potentially making you eligible for various tax benefits, such as the Credit for Other Dependents (ODC) or the Head of Household filing status if you qualify. Always consult with a tax professional or refer to the latest IRS guidelines to ensure compliance and maximize your tax benefits.

Tax deductions for elder care: 7 hidden areas

Now that we've covered the basics, we're here to uncover some of the lesser-known areas of opportunity when it comes to claiming tax deductions for elder care. From dental care to transportation, you can deduct medical expenses - and other expenses - that just might surprise you.

• Medical Expenses:
  • Out-of-pocket costs for treatments, doctor visits, surgeries, and preventive care.
  • Prescription medications and the costs of insulin.
  • Dental treatments, including dentures, fillings, and extractions.
  • Vision care, including prescription glasses, contact lenses, and laser eye surgery.
  • Hearing aids, crutches, wheelchairs, and other medical devices.
  • Psychiatric and psychological treatments.
• Long-Term Care Services:
  • Qualified long-term care services for individuals who are chronically ill, as prescribed by a healthcare professional.
  • Long-term care insurance premiums, subject to age-based limits.
• Home Improvements and Modifications:
  • Costs for modifications made to accommodate a disability or medical condition, such as ramps, grab bars, and stairlifts.
  • Modifications to vehicles for accessibility.
• Assisted Living and Nursing Home Care:
  • A portion of assisted living and nursing home expenses, if the primary reason for being there is for medical care.
  • Personal care services that are required due to a medical condition.
• Health Insurance Premiums:
  • Premiums paid for Medicare Part B and Part D, as well as Medigap policies.
  • Premiums for long-term care insurance, subject to certain limits.
• Travel Expenses for Medical Care:
  • The cost of transportation to and from medical treatments, including mileage, tolls, parking, and public transit.
  • Lodging expenses (not meals) up to $50 per night per person if traveling for medical care is necessary.
• Caregiver Expenses:
  • Wages and other expenses paid to caregivers who provide care to the elderly individual, if these services are medically necessary. Only expenses not reimbursed by insurance or other programs are deductible.

Get by with a little help from your (tax) friends

Understanding the tax deduction opportunities for assisted living expenses can feel like you're trying to read a map without the legend—confusing, right? That's exactly why reaching out to a tax professional is such a smart move. These experts are like guides through the complex world of tax laws, which, let's face it, change more often than we'd like. 

Whether it's figuring out which medical expenses are deductible or how to navigate the specifics of assisted living costs, a tax pro can offer tailor-made advice that fits your unique situation like a glove. They're not just about crunching numbers; they're about making sure you're getting every advantage you're entitled to, all while keeping you on the right side of the IRS. Think of them as your financial ally, there to ensure you don't miss out on potential savings and to help you plan wisely for the future. So, while the thought of taxes might not warm your heart, knowing you've got an expert in your corner definitely should.