Are Assisted Living Costs Tax Deductible?

Tax deductions for personal expenses can provide financial relief by reducing taxable income. While many personal costs are not deductible, specific provisions exist for significant outlays, such as those related to healthcare. Understanding which expenses qualify and how to claim them is key to managing personal finances and taking advantage of available tax benefits.

Understanding What Qualifies as Medical Care

The Internal Revenue Service (IRS) defines medical care broadly as costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any part or function of the body. Only the portion of assisted living costs directly attributable to medical care qualifies for a deduction.

Deductible medical services include nursing care, medication administration, and various therapies like physical or occupational therapy. Personal care services, such as assistance with bathing, dressing, and eating, are also deductible if provided due to medical necessity. Diagnostic services and medical-related transportation provided by the facility are considered medical expenses.

Conversely, general living expenses in an assisted living facility are not deductible unless secondary to and necessary for medical care. These non-deductible costs include basic room and board, meals not directly incidental to medical treatment, recreational activities, and general housekeeping services. The distinction lies in the primary purpose of the expense: it must be for the alleviation or prevention of a physical or mental disability or illness.

Meeting the Chronic Illness Requirement

For assisted living expenses to be considered deductible medical care, the individual receiving the care must meet specific criteria as a “chronically ill individual.” The IRS defines this as someone certified by a licensed healthcare practitioner within the previous 12 months. This certification must state the individual is unable to perform at least two Activities of Daily Living (ADLs) without substantial assistance for at least 90 days due to functional capacity loss. ADLs include eating, bathing, dressing, toileting, transferring, and continence.

Alternatively, an individual is considered chronically ill if they require substantial supervision to protect themselves from threats to health and safety due to severe cognitive impairment. This includes conditions like Alzheimer’s disease or other forms of irreversible dementia. Such an impairment must be measured by clinical evidence and standardized tests assessing memory, orientation, and reasoning.

The assisted living facility itself must also meet a “primary purpose” test. The facility must primarily provide medical care, rather than just lodging, for the expenses to be fully deductible. If medical care is not the principal reason for residency, only the specific medical care portion of the costs is deductible.

Determining Deductible Amounts

Medical expenses, including qualifying assisted living costs, are claimed as an itemized deduction on Schedule A (Form 1040). Taxpayers can only deduct the amount of medical and dental expenses that exceeds 7.5% of their Adjusted Gross Income (AGI). This threshold applies to the total qualified medical expenses paid for the taxpayer, their spouse, and dependents.

To calculate the deductible portion of assisted living costs, separate the qualifying medical care component from the total bill. Facilities provide detailed billing statements itemizing services, aiding this separation. For example, if an individual’s AGI is $50,000, only medical expenses exceeding $3,750 (7.5% of $50,000) are deductible.

If total qualified medical expenses are $10,000 and the AGI is $50,000, the deductible amount would be $6,250 ($10,000 – $3,750). This calculation highlights that significant medical costs are needed to meet the AGI threshold. Itemizing deductions is only beneficial if the total itemized deductions exceed the standard deduction for a given filing status.

Claiming the Deduction and Record Keeping

To claim the medical expense deduction, taxpayers must itemize their deductions on Schedule A (Form 1040). The total determined deductible medical expenses are reported on this form. The IRS does not require submission of documentation with the tax return itself, but maintaining thorough records is important in case of an audit.

Documentation includes invoices from the assisted living facility that itemize services, distinguishing medical care from general living expenses. The licensed healthcare practitioner’s certification of chronic illness and supporting medical records should also be retained. Proof of payments, such as bank statements or credit card statements, should be kept for at least three years.

The deduction can be claimed by the individual receiving care if they file taxes and itemize. A family member who pays for the care may also claim the deduction if they can claim the individual as a dependent, adhering to IRS dependency rules. This involves providing more than half of the individual’s support.