Tax Deductions for Assisted Living
Are Assisted Living Expenses Tax Deductible?
Below are some guidelines that may be useful to you, and your tax professional, in helping determine if any part of your assisted living expenses could be a deductible item for tax purposes. Please note the below is a guide and is not intended as tax advice. You should consult with your tax professional.
The Tax Stuff
Presently, Section 213 of the Internal Revenue Code provides a tax deduction for medical expenses to the extent medical expenses exceed 7.5% of adjusted gross income. (please note this percentage could change on an annual basis, therefore, please make sure you check with your tax professional).
Example: If a married couple had gross income of $50,000 and adjusted gross income of $45,000, they would be able to deduct some of their medical expenses not paid for from other source like insurance if the medical expenses exceed 7.5% of $45,000 (which is $3,375). If they have medical expenses of $20,000, then they would be able to deduct $16,625 ($20,000 – $3,375).
Mom and Dad’s tax bill: The trick is to determine if Mom’s assisted living facility costs qualify as expenses for “medical care.” Clearly nursing home expenses are deductible, but assisted living is a bit less certain.
Section 213 says that “medical care” includes “qualified long-term care services.” Hmmm. What assisted living expenses might be “qualified long-term care services”?
Qualified long-term care services (according to Code section 7702B) include diagnostic, preventive, therapeutic, maintenance, and other care services required by a “chronically ill individual” pursuant to a care plan prescribed by a licensed health care practitioner.
Is Mom Chronically Ill?
The key is to determine if Mom is “chronically ill” and to make sure you have a written plan of care prescribed by a physician, nurse, or other licensed medical practitioner.
To be “chronically ill” Mom must either (i) be unable to perform at least two activities of daily living (called ADLs) for at least 90 days, or (ii) require substantial supervision in order to protect her health or safety due to cognitive impairment (in other words . . . dementia). ADLs include eating, toileting, transferring (in and out of wheel chairs and beds), bathing, dressing and continence.
So, if Mom is unable to perform at least two of the ADLs for more than 90 days OR she has dementia and requires close supervision, she qualifies as “chronically ill.” Make sure to get the written plan!
If Mom is in the assisted living facility because she needs a “little help” Dad could have some problems. On the other hand, if Mom cannot get in and out of bed, bath and eat by herself, or if she is perhaps in the locked Alzheimer’s unit, Dad will be able to use the assisted living facility costs as a potential medical deduction.
Deductible Assisted Living Facility Costs
To return to Mom’s and Dad’s situation above, they have $48,600 of medical expenses (the assisted living facility costs and the unreimbursed drug expenses). If Dad figures adjusted gross income of say, $90,000, then he can deduct the expenses over 7.5% of $90,000 ($6,750).
The deduction of $41,850 ($48,600–$6,750) should help out a great deal!
You should contact your tax professional for personal advice.