Can you write off assisted living on taxes for seniors?

According to tax experts and the IRS, a portion of assisted living costs can be tax deductible as medical expenses under certain conditions. This raises a critical question for many families: can you write off assisted living on taxes for seniors? The eligibility and process depend heavily on the resident's health status and financial situation.

Quick Summary

Assisted living costs can be partially or fully tax deductible if the resident is certified as 'chronically ill' and the expenses are for medical care; however, deductions are only available for taxpayers who itemize and whose total medical expenses exceed 7.5% of their Adjusted Gross Income (AGI).

Key Points

• Deductible Medical Expenses: Only the portion of assisted living costs that qualifies as medical expenses can be deducted, not general living expenses like room and board.

• 7.5% AGI Threshold: Your total unreimbursed medical expenses must exceed 7.5% of your Adjusted Gross Income (AGI) for the year to be deductible.

• 'Chronically Ill' Certification: For personal care services to be fully deductible, a licensed health care provider must certify the resident as 'chronically ill' due to cognitive impairment or inability to perform ADLs.

• Dependent Claim: You can potentially claim the medical expenses for a parent as a dependent if you provide more than half of their support, even if their income exceeds the typical limit.

• Itemize Deductions: To take this deduction, you must itemize on Schedule A of your tax return, rather than taking the standard deduction.

• Keep Detailed Records: Meticulous documentation, including invoices itemizing medical services, care plans, and medical certification, is crucial for substantiating your claim.

Understanding the Medical Expense Deduction

For many families, the cost of assisted living represents a significant financial burden. Thankfully, the Internal Revenue Service (IRS) offers a medical expense deduction that can help offset some of these costs. However, it's not a straightforward process, and strict criteria must be met to qualify. The deduction is available for unreimbursed medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI) and can be claimed by itemizing deductions on your federal tax return.

Who Is Eligible to Claim the Deduction?

Eligibility for deducting assisted living expenses rests on two primary factors: the resident's health status and the taxpayer's relationship to the resident. The taxpayer can be the resident themselves or a family member claiming the resident as a dependent.

The 'Chronically Ill' Requirement

For assisted living expenses to qualify as medical care, the resident must be certified as "chronically ill" by a licensed health care practitioner within the previous 12 months. This certification is met if the individual requires substantial supervision due to severe cognitive impairment, such as dementia, or is unable to perform at least two Activities of Daily Living (ADLs) without substantial assistance. ADLs include eating, bathing, dressing, continence, and transferring.

The Plan of Care Requirement

Personal care services must be provided under a plan of care from a licensed health care practitioner.

Claiming a Dependent

An adult child can claim a parent's assisted living expenses if the parent qualifies as a dependent by receiving more than half of their support from the child. Even if the parent has income exceeding the dependency threshold, exceptions exist for medical expense deductions if other tests are met. Information regarding multiple support agreements when several family members contribute to a parent's support can be found on {Link: Senior Living Residences https://www.seniorlivingresidences.com/family-guide/financial-options/tax-deductibility/}.

What Assisted Living Expenses Can Be Deducted?

Only the portion of assisted living costs directly related to medical and long-term care services is deductible. For chronically ill individuals, deductible expenses may include assistance with ADLs, medication management, dementia care, therapy, and transportation for medical appointments. Typically, non-deductible expenses include rent, meals (unless medically essential), general maintenance, and recreational activities. Room and board may be deductible if the resident's stay is primarily for medical care due to chronic illness. A comparison of expense types can be found on {Link: Senior Living Residences https://www.seniorlivingresidences.com/family-guide/financial-options/tax-deductibility/}.

The AGI Threshold

Unreimbursed medical expenses must exceed 7.5% of your Adjusted Gross Income (AGI) to be deductible. The deduction applies only to the amount above this limit.

How to Claim the Deduction

1. Itemize Deductions: You must itemize deductions on Schedule A.
2. Keep Meticulous Records: Maintain detailed records of payments, invoices with itemized costs, and care plans.
3. Obtain Medical Certification: Ensure the resident is certified as chronically ill and has a prescribed care plan.
4. Consult a Tax Professional: Tax laws are complex, and professional advice is recommended for compliance and maximizing deductions.

For further guidance, consult IRS Publication 502 on Medical and Dental Expenses.

Conclusion: Navigating Tax Benefits for Assisted Living

Deducting assisted living costs requires understanding IRS rules and maintaining careful records. Consulting a tax professional is essential to navigate these complexities and maximize potential tax savings.

Frequently Asked Questions

What is the 'chronically ill' certification and how do I get one?

A 'chronically ill' certification from a licensed health care practitioner confirms that a person requires substantial assistance with at least two Activities of Daily Living (ADLs) or needs supervision due to cognitive impairment. You can obtain this from the resident's doctor, nurse, or social worker.

Can I deduct my parent's assisted living expenses if they are not my dependent?

Generally, yes, you may still deduct their medical expenses under specific IRS exceptions. These exceptions can apply if you would have been able to claim them as a dependent but their income was too high or they filed a joint return.

Are room and board costs ever tax deductible?

Yes, if the primary reason for residing in the assisted living facility is to receive medical care due to a chronic illness, and this is part of a care plan, then the IRS may allow the deduction of room and board costs, treating them like a hospital stay.

How do I prove that the expenses are for medical care?

You should ask the assisted living facility for an itemized statement breaking down the costs between medical services (e.g., nursing, ADL assistance) and non-medical services (e.g., room, meals). Keep all invoices and records of payments.

What if my medical expenses don't exceed 7.5% of my AGI?

If your total unreimbursed qualifying medical expenses for the year do not exceed 7.5% of your Adjusted Gross Income, you cannot claim the medical expense deduction. You may need to explore other financial strategies, like long-term care insurance.

Do I have to itemize my deductions to claim assisted living expenses?

Yes, claiming the medical expense deduction requires that you itemize your deductions on Schedule A of your federal tax return. You cannot use the standard deduction and claim this benefit.

Does long-term care insurance affect the deduction?

Yes, any medical costs that are reimbursed by a long-term care insurance policy cannot be included in the total expenses used to calculate your tax deduction.