Did you know that if you are an elder adult or a caregiver for one, there are ways to get a tax deduction for assisted living costs? 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, continence care, transferring, bath, or dressing; or
- requires supervision due to a cognitive impairment (such as Alzheimer’s disease or another form of dementia).
Elders who are not chronically ill may still deduct the portion of their expenses that are attributable to medical care, including entrance or move in fees.
What is the criteria to claim the tax deduction for assisted living costs?
- The medical expenses have to be more than 10 percent of the resident’s adjusted gross income. (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.)
- In addition, only expenses paid during the year can be deducted, regardless of when the services were provided.
- Expenses are not deductible if they are reimbursable by insurance.
Which Expenses can be deducted?
- Room and board for assisted living if the resident is certified chronically ill by a healthcare professional and following a prescribed plan of care. Typically this means that they are unable to perform two activities of daily living (ADLs) or require supervision due to Alzheimer’s disease or other conditions.
- Entrance or move-in fees for Assisted living.
- Cost of prescription drugs.
- Personal care items, such as disposable briefs and foods for a special diet or nutritional supplements.
- Cost of travel to and from medical appointments.
- Premiums paid for insurance policies that cover medical care are deductible, unless the premiums are paid with pretax dollars. Generally, the payroll tax paid for Medicare Part A is not deductible, but Medicare Part B premiums are deductible.
- Payments made for nursing services. An actual nurse does not need to perform the services as long as the services are those generally performed by a nurse.
- Fees from doctors, laboratories, home health care and hospitals.
- The cost of long-term care in a nursing home or rehabilitation center, including housing, food, and other personal costs, if the person is chronically ill.
- Home modifications costs such as wheelchair ramps, grab bars and handrails.
- The cost of dental treatment.
For a full list of allowable medical expenses, see IRS Publication 502. Read about the rules that govern deductions and for more tax tips for elder adults and their caregivers.
My parent lives in my home with me. Can I qualify for a dependency deduction?
If you care for an elder parent in your home, your parent may qualify as your dependent, resulting in additional tax benefits for you. Once you determine that both of you meet IRS criteria, you can claim your parent as a dependent on your tax return.
To qualify for a dependency deduction, you must pay for more than 50% of your qualifying relative’s support costs. The relative only qualifies as a dependent if he or she meets the gross income and the joint return test. If your relative doesn’t qualify as a dependent because of these tests, you cannot claim a dependency deduction, but you can still claim his or her medical expenses. For more information, read page 20 – 21 (Support test to be a qualifying relative) of the IRS Publication 501 on tax exemptions.
See the 5-minute video below for more details about the dependency deduction.
By nature, tax rules are complex. It’s important to consult a tax attorney or accountant versed in eldercare tax issues about your specific situation before finalizing your taxes. The AARP also offers free assistance and tax tips for elder adults through its Tax-Aide program.
About the Author: Jean Garboden is the Director of Education and Innovation at Compass Senior Living, located in Eugene Oregon. Jean is an Elder Advocate and Eden Alternative Educator with over 30 years’ experience in not-for-profit and for-profit health care organizations. She is honored to lead the mission and values culture development for Compass Senior Living. Jean lives in Las Vegas, Nevada where she enjoys the weather and volunteers with the Nevadans for the Common Good, advocating for caregivers and elders in southern Nevada