Are Assisted Living Expenses Tax Deductible?

The costs associated with assisted living can be a significant financial output, but these expenses may be tax deductible under specific circumstances. The Internal Revenue Service (IRS) allows taxpayers to deduct qualifying medical expenses, and certain assisted living costs can fall into this category. This deduction is not automatic and is governed by a detailed set of rules that define who is eligible and which costs qualify.

Understanding these regulations is the first step for any individual or family member paying for this type of care. The tax benefit is contingent upon meeting specific tests related to the resident’s health status and the nature of the services provided.

Eligibility for the Medical Expense Deduction

For assisted living expenses to be tax deductible, the person receiving care must meet specific IRS criteria. Qualification hinges on the individual’s health status or the primary reason for their residency. One path to eligibility is if the principal reason for being in the facility is to receive medical care. This means the services focus on treating a health condition, not just providing room and board.

A more common way to qualify is if the resident is certified as “chronically ill” by a licensed health care practitioner within the previous 12 months. To be considered chronically ill, an individual must be unable to perform at least two of the six Activities of Daily Living (ADLs) without substantial assistance for at least 90 days. The ADLs are:

• Eating
• Bathing
• Dressing
• Toileting
• Transferring (such as moving from a bed to a chair)
• Continence

An individual can also be certified as chronically ill if they require substantial supervision to protect their health and safety due to a severe cognitive impairment, such as Alzheimer’s disease. In either case, the services must be provided under a plan of care prescribed by a licensed health care practitioner. This plan outlines the specific services the resident requires.

The person paying the bills can claim the deduction, provided the resident qualifies as their dependent. This is often the case for an adult child paying for a parent’s care. To claim a parent, the taxpayer must provide more than half of the parent’s total support for the year. The parent’s gross income for the tax year must also be below a certain threshold, which for 2024 is $5,050.

Determining and Calculating Deductible Costs

Once eligibility is established, the next step is to identify which costs are deductible based on the qualification path. If the primary reason for being in the facility is to receive medical care, the entire cost of care can be included as a medical expense. This includes payments for lodging and meals, similar to how costs are treated during a hospital stay.

The rules are more restrictive if the resident qualifies by being chronically ill. In this case, only the amounts paid for actual medical care and long-term care services are deductible. The costs for room, board, or other non-medical services are not deductible under this path. This distinction makes documentation from the facility important.

To separate these costs, you must obtain a detailed, itemized statement from the facility. This statement should break down the monthly fees, allocating specific amounts to medical services, personal care, and non-deductible items like lodging and meals. Without this breakdown, it is difficult to support the claimed medical deduction.

Qualified assisted living expenses are combined with other unreimbursed medical costs paid during the year, such as doctor visits, prescription drugs, and dental care. The total medical expense deduction is limited by a taxpayer’s Adjusted Gross Income (AGI). Medical expenses are only deductible to the extent they exceed 7.5% of the taxpayer’s AGI. For example, if a taxpayer’s AGI is $80,000, the first $6,000 of medical expenses are not deductible. If their total qualified medical expenses were $20,000, they could deduct $14,000.

How to Claim the Deduction

To claim a deduction for assisted living expenses, a taxpayer must itemize deductions on Schedule A (Form 1040) rather than taking the standard deduction. The process involves reporting the total amount of qualified medical expenses on the form. The form then guides you through the calculation to subtract the 7.5% AGI limitation.

Choosing to itemize is only beneficial if the total of all itemized deductions, including medical expenses, state and local taxes, and charitable contributions, is greater than the standard deduction for the taxpayer’s filing status. The final calculated medical expense deduction from Schedule A is then entered on the main Form 1040.

Meticulous record-keeping is necessary when claiming this deduction. Taxpayers should retain all documents that support their claim in the event of an IRS inquiry. This includes a copy of the signed certification of chronically ill status from the licensed health care practitioner. It is also important to keep all detailed invoices and statements from the assisted living facility that clearly distinguish between costs for medical care and personal expenses like room and board. Proof of payment, such as canceled checks or bank statements, should also be kept with tax records.