Can Assisted Living Expenses Be Deducted?

Navigating the costs of assisted living can be a significant financial undertaking for many families. These facilities provide various services, ranging from personal care to extensive medical support. Many individuals wonder if these substantial expenses offer any tax relief. The Internal Revenue Service (IRS) recognizes that certain healthcare-related costs associated with assisted living may be eligible for tax deductions. This potential for tax savings depends on specific IRS guidelines related to medical necessity and income thresholds.

Determining What Qualifies as Medical Care

For assisted living expenses to be deductible as medical care, the Internal Revenue Service (IRS) applies a “primary reason” test. If the main reason for residing in the facility is to receive medical care, then the entire cost, including meals and lodging, may be deductible. Conversely, if the primary reason for being in the assisted living facility is not medical care, only the specific medical services received within the facility are deductible.

Medical care expenses generally include payments for diagnosing, curing, mitigating, treating, or preventing disease, or for treatments affecting any body structure or function. Examples of services that typically qualify as medical care within an assisted living setting include nursing services, medication management, wound care, and therapies such as physical, occupational, or speech therapy. Medical-related transportation provided by the facility and medical equipment like wheelchairs or hearing aids also fall under qualifying medical expenses.

In contrast, general living costs such as standard rent or housing fees, basic meal plans not specifically prescribed for medical reasons, and recreational or entertainment activities are typically not deductible. Personal care services like bathing, dressing, or assistance with daily activities (ADLs) may qualify if medically necessary and provided as part of a care plan for a chronically ill individual. An individual is considered chronically ill if they are unable to perform at least two ADLs for a minimum of 90 days, or require substantial supervision due to cognitive impairment like Alzheimer’s or dementia.

A licensed healthcare professional must certify the medical necessity of the care and that the individual is chronically ill within the last 12 months for these expenses to qualify. This certification should confirm that the care is provided according to a prescribed plan of care.

Understanding the Deduction Rules

Taxpayers can deduct qualified unreimbursed medical expenses that exceed 7.5% of their Adjusted Gross Income (AGI). For example, if a taxpayer’s AGI is $50,000, only medical expenses exceeding $3,750 (7.5% of $50,000) can be deducted.

Medical expenses can be claimed for the taxpayer, their spouse, or a dependent. A person can be considered a dependent for medical expense deduction purposes even if they cannot be claimed for other tax benefits, such as if their gross income is above a certain amount, or if they file a joint return. If multiple family members contribute to the support of an individual, a multiple support agreement can allow one person to claim the deduction, provided they contribute over 10% of the individual’s support.

To claim medical expense deductions, taxpayers must itemize deductions on Schedule A (Form 1040) instead of taking the standard deduction. The decision to itemize depends on whether the total of all eligible itemized deductions, including medical expenses, state and local taxes, and mortgage interest, exceeds the applicable standard deduction amount for their filing status. The standard deduction amounts vary by filing status and are adjusted annually.

Gathering Necessary Documentation

Maintaining comprehensive and organized records is important for substantiating assisted living expense deductions. Taxpayers should keep itemized statements or invoices from the assisted living facility. These documents should clearly separate medical care costs from non-medical costs, such as room and board.

It is also important to retain doctor’s notes, certifications, or letters that confirm the medical necessity of the care provided. This documentation should state that the primary reason for the individual’s residence in the facility is medical, or that the individual is chronically ill and requires a plan of care.

Receipts for any other directly related medical expenses incurred outside the facility, such as prescription medications or medical supplies, should also be kept. These records, along with proof of payment, are necessary in case the IRS requests further information or initiates a review.

Claiming the Deduction on Your Tax Return

After determining qualified assisted living expenses and ensuring proper documentation, these amounts are reported on Schedule A (Form 1040), Itemized Deductions. This form is used to list various itemized deductions, including medical and dental expenses. The total amount of qualified medical expenses paid during the year is entered on the designated line on Schedule A.

The Adjusted Gross Income (AGI) threshold calculation is then applied on Schedule A. Taxpayers enter their AGI from their Form 1040, and then calculate 7.5% of that amount. This 7.5% threshold is subtracted from the total medical expenses, and only the remaining amount is deductible. For example, if total qualified medical expenses are $10,000 and the 7.5% AGI threshold is $3,000, then $7,000 can be deducted.

Taxpayers must choose between taking the standard deduction or itemizing their deductions. Itemizing is beneficial only if the total of all itemized deductions, including medical expenses, exceeds the standard deduction amount for their filing status. While documents supporting the deduction are generally not submitted with the tax return, they must be kept readily available. The IRS requires taxpayers to retain these records for potential review or audit for typically three years from the date the return was filed. For complex situations, consulting a tax professional is advisable.