Is Assisted Living a Tax Deductible Expense?
Over one million seniors live in Assisted Living communities across the United States and many of them pay their monthly fees with their own financial resources. The good news is that some or all of the costs of Assisted Living and Alzheimer's care may be tax deductible.
These are the basic rules concerning the tax deductibility of Assisted Living and Alzheimer's care expenses:
- According to the 1996 Health Insurance Portability and Accountability Act (HIPAA), “long-term care services” may be tax deductible as an unreimbursed medical expense on Schedule A. Qualified long-term care services have been defined as including the type of daily “personal care services” provided to Assisted Living residents, such as help with bathing, dressing, continence care, eating and transferring, as well as “maintenance services”, such as meal preparation and household cleaning.
- Assisted Living residents seeking tax deductions for their services must qualify as “chronically ill”. This definition refers to seniors who are unable to perform two or more “Activities of Daily Living” (eating, transferring, bathing, dressing and continence) without assistance, or who need constant supervision because of a “severe cognitive impairment” such as Alzheimer’s disease or related dementias. The Assisted Living resident must have been certified within the previous 12 months as “chronically ill” by a licensed health care practitioner.
- In order to qualify for a deduction, personal care services must be provided pursuant to a plan of care prescribed by a licensed health care practitioner. Many Assisted Living communities have on staff a licensed nurse or social worker who prepares a plan of care, sometimes called a “Wellness Care Plan,” in coordination with the resident’s physician which outlines the specific daily services the resident will receive in the community.
- In order to take advantage of deductions, a taxpayer must be entitled to itemize his or her deductions. Additionally, long-term care services and other unreimbursed medical expenses must exceed 7.5% of the taxpayer’s adjusted gross income. (Generally, a taxpayer can deduct the medical care expenses of his or her parent if the taxpayer provides more than 50% of the parent’s support costs.)
- For some Assisted Living residents, the entire monthly rental fee might be deductible, while for others, just the specific personal care services would qualify for a deduction.
Assisted Living residents and their adult children should consult a tax advisor with questions concerning your own personal circumstances. The Executive Directors at Senior Living Residences communities cannot offer specific tax advice. We can provide our residents and their families with a list of local attorneys and/or Certified Public Accountants who can assist you with estate planning and tax issues. We do not specifically endorse any one person or firm, but the list may be helpful as a starting point for you to obtain professional assistance.
- View a detailed overview of “The Tax Deductibility of Long-Term Care Services & Assisted Living” prepared by CliftonLarsonAllen, LLP, a national accounting and consulting firm.
- Details are available in two IRS documents: (1) IRS Publication 502: Medical and Dental Expenses has a complete list of allowable expenses and (2) IRS Publication 501: Exemptions, Standard Deductions and Filing Information to learn more about claiming the person with dementia as a dependent. Visit www.irs.gov for more information.
A Note To Families Caring For A Loved One With Alzheimer's At Home
The tax benefits available from the Internal Revenue Service (IRS) also apply to out-of-pocket medical expenses for families who are caring for a loved one with Alzheimer's disease at home. The person with dementia may be considered your dependent for tax purposes and you may be allowed to itemize his or her medical costs, which are not reimbursed by insurance. If the person with dementia is your dependent under the tax rules, you might also be able to use your own workplace flexible spending account (FSA) to pay for out-of-pocket medical expenses and dependent care expenses with pretax dollars, for a potential savings of about 20 to 30 percent.
The list of allowable itemized expenses includes:
- Medical fees from doctors, laboratories, home health care and hospitals ("medical fees" also include assisted living expenses, as detailed above)
- Cost of prescription drugs
- Cost of transportation to receive medical care
- Home modifications costs such as grab bars and handrails
- Personal care items, such as disposable briefs and food
Additionally, if you paid someone to care for the person with dementia so you could work or look for work, you may be able to claim the "Child and Dependent Care Credit" on your federal income tax return. If eligible, you would be allowed a credit of up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
There are restrictions and thresholds in place so be sure to consult with a tax advisor and review the two IRS publications on this issue for details.
- IRS Publication 502: Medical and Dental Expenses has a complete list of allowable expenses
- IRS Publication 501: Exemptions, Standard Deductions and Filing Information to learn more about claiming the person with dementia as a dependent.
- Also visit www.irs.gov for more information
- Visit the Alzheimer's Association website for a more detailed overview of tax deductions and credits that are available for out-of-pocket medical expenses paid by families caring for a loved one with Alzheimer's at home.