More than 700,000 seniors live in thousands of assisted living facilities throughout the U.S., says a recent study from the Centers for Disease Control ad Prevention (CDC). And nearly 87 percent of residents pay for these facilities out of their own and their familiesâ€™ financial resources. The good news is that seniors and caregivers may be eligible for tax deductions for assisted living costs that are related to medical or dental expenses.
If a loved one is receiving substantial medical care in assisted living and/or is in a special needs unit in a community, he or she may qualify for a tax deduction. This includes residents with Alzheimerâ€™s or other forms of dementia who require substantial supervision to protect their health and safety.
For seniors residing in independent living communities, however, the only eligible deductible expenses would likely be those directly related to medical costs.
Detailed record keeping throughout the year, even for related expenses like mileage to and from doctor visits, can add up to substantial writeoffs at tax time. First, the taxpayer must determine if he or she is entitled to itemize deductions. If the taxpayer is the senior, he or she can deduct qualified medical expenses. If the taxpayer is the caregiver, that caregiver must first find out if the senior qualifies as a dependent, depending on these IRS requirements:
Consult a tax professional to learn more. Also this website offers more information on dependency at: http://www.irs.gov/publications/p554/ch05.html.
For assisted living expenses to be tax deductible, the resident must be considered "chronically ill." A doctor or nurse needs to have certified that the resident either:
To qualify for the deduction, the seniorâ€™s personal care services need to 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 receives.
Typically, only the medical components of assisted living costs are deductible and ordinary living costs like room and board are not. However, if the resident is chronically ill and the facility is acting 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. 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.
To claim the deduction, the medical expenses have to be more than 10 percent of the residentâ€™s adjusted gross income. (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.)In addition, only medical expenses paid during the year can be deducted, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
For more information on what can and cannot be deducted for medical expenses see Publication 502 on the IRS Web site at http://www.irs.gov/pub/irs-pdf/p502.pdf and/or seek the advice of a tax professional.