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Tax Deductions for Assisted Living

You may be able to deduct a portion…or even all…of what you or a family members pays for assisted living costs. You probably know that medical expenses, including some long-term care expenses, are deductible if the expenses are more than 10 percent of your adjusted gross income. (For taxpayers 65 and older, this threshold is 7.5 percent through 2016.)

Many people do not understand these rules, and they pay more income taxes than the law requires. Don’t presume that the tax deduction is only limited to a portion of the cost the assisted living says is allocated to care. In some cases, even the room and board is deductible, as described below.

In order for assisted living expenses to be tax deductible, the resident must be considered “chronically ill.” This means a doctor or nurse has 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).

In addition, to qualify for the deduction, personal care services must 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 will receive. Though not required by law, most assisted living facilities prepare care plans for their residents.

What part of the Assisted Living payment is deductible?

Generally, only the medical component of assisted living costs is deductible, and you cannot deduct ordinary living costs like room and board. In fact, facilities provide a letter to residents that explain how the monthly payments are allocated between these types of expenses, and what should be deducted. But don’t presume that your deduction is limited to only the medical component stated in that letter!

When the resident is chronically ill, some or all of the cost for room and board may be deductible. The rule states that for a chronically ill resident who is in the facility 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, just as it would be in a hospital. If the care is considered custodial and not medical care, the costs are deductible only to a limited extent. In any case, the expenses are not deductible if they are reimbursed by insurance or any other programs.

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. The assisted living facility is responsible for providing residents with information as to what portion of fees is attributable to medical costs.

Under limited circumstances, adult children may get a tax deduction if their parents or other immediate family members (including in-laws) live at an assisted living facility and qualify as their dependents. The rules require that:

  • the family member must be a U.S. citizen or legal resident or resident of Canada or Mexico,  and
  • the adult child must provide more than half of the family member’s support for the year.

When the support of a parent is shared among multiple children, and no one child is paying more than half of the parent’s support, the children still may be able to get a tax deduction. When the adult child is paying less than half the family member’s total support for the year, the child still may be eligible for a deduction, if all of these requirements are met:

  • he or she contributes to the family member’s support according to a “multiple support agreement,”
  • the adult child must pay more than 10 percent of an individual’s total support for the year,
  • all those who support the resident, collectively contribute to more than half of the resident’s support, and
  • all those supporting the individual must agree on and sign an IRS form entitled “Multiple Support Declaration.”

For more information on deducting medical expenses from your taxes, click here.

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The Elderlaw Firm

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