Are Assisted Living Expenses Tax Deductible?

Navigating the costs associated with assisted living facilities can be a significant financial undertaking for many families. While these expenses are substantial, certain portions may be eligible for tax deductions, offering potential financial relief. This article explores the criteria for deducting assisted living expenses as medical costs, outlining what qualifies and how to claim these deductions.

Determining Eligibility for Medical Expense Deductions

For assisted living costs to be considered medical expenses for tax purposes, the primary reason for care must be medical. The Internal Revenue Service (IRS) defines “medical care” as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. This distinguishes care for health reasons from care for personal convenience or general well-being. Expenses merely beneficial to general health, such as vitamins or a gym membership, typically do not qualify.

A condition for deducting assisted living expenses is that the individual receiving care must be considered “chronically ill.” The IRS defines a chronically ill person as someone certified by a licensed health care practitioner as unable to perform at least two activities of daily living (ADLs) without substantial assistance for at least 90 days due to a loss of functional capacity. These ADLs commonly include bathing, dressing, eating, continence, and transferring. Alternatively, an individual is chronically ill if they require substantial supervision to protect their health and safety due to severe cognitive impairment, such as Alzheimer’s disease or related dementias.

The certification of chronic illness must be provided by a licensed health care practitioner, such as a physician, nurse, or social worker. This professional must confirm the individual’s condition and the need for assistance with ADLs or supervision due to cognitive impairment. This certification is foundational for establishing eligibility and supporting any medical expense deduction claim.

Qualifying Assisted Living Expenses

Certain costs within an assisted living facility can be included as deductible medical expenses. Generally, only the medical component of assisted living costs is deductible. This includes nursing services, medication management, physical or occupational therapy, and medical equipment.

The cost of meals and lodging within an assisted living facility can also be included as a medical expense, but only if the main reason for the individual’s presence is to receive medical care for a chronic illness. If the primary purpose of residency is medical care, the entire cost of meals and lodging may be deductible, similar to a hospital stay. However, if medical care is not the principal reason for being in the facility, only the portion directly attributed to medical services is deductible, while general room and board are not.

Expenses that do not qualify for deduction include costs for personal grooming, purely social activities, or general room and board if the individual is not primarily in the facility for medical care. Any expenses reimbursed by insurance or other programs cannot be deducted. Facilities often provide a letter breaking down payments between medical and non-medical expenses, which can be a helpful guide.

Calculating the Deductible Amount

Medical expenses, including qualifying assisted living costs, are considered itemized deductions on a tax return. Taxpayers must choose to itemize their deductions rather than taking the standard deduction to claim these expenses. For most taxpayers, medical expenses are deductible only to the extent they exceed 7.5% of their Adjusted Gross Income (AGI).

To calculate the deductible amount, first determine the AGI threshold by multiplying your AGI by 0.075. Next, sum all qualifying unreimbursed medical expenses for the year. The amount by which your total qualifying medical expenses exceed this 7.5% AGI threshold is the deductible portion. For instance, if a taxpayer has an AGI of $50,000, the 7.5% threshold is $3,750 ($50,000 x 0.075). If their total qualifying medical expenses are $10,000, they can deduct $6,250 ($10,000 – $3,750).

If your total itemized deductions, including medical expenses, do not exceed your applicable standard deduction, itemizing may not provide a tax benefit. Therefore, before calculating the specific medical expense deduction, taxpayers should determine if their total itemized deductions will surpass their standard deduction.

Required Documentation and Claiming the Deduction

Maintaining comprehensive records is essential for substantiating any medical expense deduction, including those for assisted living. Taxpayers should keep all receipts and invoices from the assisted living facility, ensuring they itemize services and costs. It is important to have statements that clearly differentiate between medical and non-medical charges. Proof of payment, such as bank statements or canceled checks, should also be retained.

The certification of chronic illness from a licensed health care practitioner is a key piece of documentation. This document confirms the medical necessity for assisted living services and the individual’s inability to perform ADLs or cognitive impairment. While these records are not typically submitted with the tax return, they must be readily available if the IRS requests them for verification. Taxpayers should keep these documents with their tax records for at least three years from the date the return was filed.

To claim the deduction, these expenses are reported on Schedule A (Form 1040), Itemized Deductions. On Schedule A, taxpayers list their total qualifying medical expenses and calculate against their Adjusted Gross Income (AGI) threshold. The deductible amount, which is the portion exceeding 7.5% of AGI, is then included in the total itemized deductions. This calculated amount contributes to reducing the taxpayer’s overall taxable income.