Are Assisted Living Expenses Tax Deductible?

Assisted living facilities offer services to support individuals needing help with daily activities while maintaining some independence. These facilities provide a residential setting with personal care and health services. As the need for such care grows, families often face significant financial considerations. Understanding the potential tax implications of these costs is important for individuals and their loved ones.

Defining Medical Care for Assisted Living

The Internal Revenue Service (IRS) outlines specific criteria for assisted living expenses to qualify as “medical care” for tax deduction purposes. Generally, “medical care” encompasses payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. For long-term care services, including those provided in an assisted living facility, the primary reason for the individual’s presence must be to receive medical care, not merely for personal convenience.

A foundational requirement for deductibility is that a licensed health care practitioner must certify the individual as “chronically ill” within the previous 12 months. A chronically ill individual is defined in two ways. First, they may be unable to perform at least two “Activities of Daily Living” (ADLs) without substantial assistance for a period expected to last at least 90 consecutive days. These ADLs include eating, bathing, dressing, toileting, transferring, and continence.

The second definition of “chronically ill” applies to individuals who require substantial supervision to protect them from threats to their health and safety due to severe cognitive impairment. This often pertains to conditions like Alzheimer’s disease or other dementias where judgment and reasoning are significantly affected. The certification from a medical professional verifies the individual’s condition and the necessity of the care being received.

If the primary reason for residing in the assisted living facility is to obtain medical care due to chronic illness, the entire cost, including meals and lodging, may be considered a medical expense. Conversely, if the individual is in the facility primarily for personal reasons, only the specific medical or nursing care portion of the expenses would be deductible.

Identifying Deductible Expenses within Assisted Living

When an individual meets the “chronically ill” criteria, various services within an assisted living facility can qualify as deductible medical expenses. These include direct medical services such as nursing care, medication management, and therapies like physical, occupational, or speech therapy. Personal care services, which involve assistance with activities of daily living (ADLs) like bathing, dressing, eating, and toileting, are also considered medical expenses.

The deductibility of lodging and meals within an assisted living facility hinges on the “primary reason” test.

Expenses for purely social activities, general personal care items not prescribed by a medical professional, or amenities not directly related to medical care are not deductible.

To accurately determine which expenses qualify, obtain a detailed, itemized breakdown of services and charges from the assisted living facility. This documentation should clearly separate medical care costs from other living expenses. Without such a breakdown, substantiating the medical portion of expenses to the IRS can be difficult.

Requirements for Claiming the Deduction

Claiming medical expense deductions, including those for assisted living, requires taxpayers to itemize their deductions on Schedule A (Form 1040) rather than taking the standard deduction. Itemized deductions are specific expenses that can reduce an individual’s taxable income, differing from the standard deduction, which is a fixed amount based on filing status. The total of all itemized deductions, including medical expenses, must exceed the standard deduction amount to provide a tax benefit.

The Adjusted Gross Income (AGI) threshold is a significant aspect of the medical expense deduction. Taxpayers can only deduct the amount of qualified medical expenses that exceeds 7.5% of their AGI. For instance, if an individual has an AGI of $50,000, only medical expenses above $3,750 (7.5% of $50,000) would be deductible. If total qualifying medical expenses were $10,000, the deductible amount would be $6,250 ($10,000 – $3,750).

Meticulous record-keeping is important for substantiating medical expense deductions. Taxpayers should retain all invoices and statements from the assisted living facility, clearly showing the breakdown of services and costs. Documentation verifying the individual’s chronic illness, such as a certification from a licensed health care practitioner, must also be kept. Proof of payment, like canceled checks or credit card statements, and any statements of reimbursement from insurance providers are also necessary.

Any reimbursements received from insurance for medical expenses must reduce the total amount of expenses eligible for deduction. Only the unreimbursed portion of qualified medical expenses can be included in the deduction calculation. This ensures taxpayers are not deducting expenses for which they have already received compensation.

The Process of Claiming the Deduction

Once all qualifying medical expenses for assisted living have been identified and calculated, along with the impact of any insurance reimbursements, the next step involves reporting these amounts on the tax return. The total amount of unreimbursed, qualified medical expenses is entered on Schedule A (Form 1040), Itemized Deductions.

On Schedule A, the individual’s Adjusted Gross Income (AGI) from Form 1040 is also entered. The form then guides the calculation, applying the 7.5% AGI threshold to determine the deductible portion of the medical expenses. Only the amount exceeding this threshold is carried forward as part of the total itemized deductions.

After completing Schedule A, the total allowable itemized deductions are transferred to the main Form 1040. Schedule A is attached to Form 1040 when the tax return is filed. This procedural flow ensures the medical expense deduction is properly integrated into the overall tax calculation. For complex medical expenses or significant assisted living costs, consulting with a tax professional is advisable to ensure accurate reporting and to maximize eligible deductions.