Can Assisted Living Expenses Be Deducted on Taxes?
Navigate the tax rules for assisted living expenses. Learn the precise conditions and qualifying costs for medical deductions to reduce your taxable income.
Assisted living expenses can represent a significant financial commitment, and understanding their tax implications is important for many families. While not all costs associated with assisted living facilities are deductible, specific portions may qualify as medical expenses under certain conditions. The ability to deduct these expenses depends on meeting particular criteria related to the resident’s health status and the nature of the services provided. This guidance aims to clarify which expenses might be eligible and the requirements for claiming such deductions on a federal income tax return.
Understanding Medical Expense Deductions
Understanding the general rules for medical expense deductions is important for determining if assisted living expenses are deductible. Taxpayers can deduct qualified unreimbursed medical expenses on Schedule A (Form 1040) for itemizing deductions. This deduction applies only if a taxpayer chooses to itemize rather than taking the standard deduction. For many, the standard deduction is higher than their total itemized deductions, making itemizing less common.
Medical expense deductions are subject to an Adjusted Gross Income (AGI) threshold. Only the amount of medical and dental expenses exceeding 7.5% of your AGI is deductible. For example, if your AGI is $50,000, only medical expenses over $3,750 (7.5% of $50,000) can be deducted. If your total medical expenses are $6,000 in this scenario, you could deduct $2,250. This threshold is 7.5% of AGI.
Qualified medical expenses include costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. This includes a broad range of services and products for medical care, not general health. Expenses must be unreimbursed by insurance or other sources to be considered for deduction.
Qualifying for Assisted Living Expense Deductions
Assisted living expenses qualify as medical expenses for tax purposes if specific criteria are met regarding the individual and services. The individual must be “chronically ill” as defined by Internal Revenue Service (IRS) guidelines. This means being unable to perform at least two Activities of Daily Living (ADLs) for at least 90 days due to functional capacity loss. These ADLs typically include bathing, dressing, eating, toileting, and transferring (moving in or out of a bed, chair, or wheelchair). Alternatively, chronic illness includes requiring substantial supervision for health and safety due to severe cognitive impairment, such as Alzheimer’s or dementia.
A licensed healthcare practitioner must also certify the individual’s chronic illness. This certification must include a prescribed “plan of care” detailing necessary services. The plan of care specifies the required care and forms the basis for the deduction. A licensed healthcare practitioner can be a physician, registered nurse, or other state-authorized medical professional.
The primary reason for residing in the assisted living facility must be to receive medical care. If medical care is the principal reason, even meals and lodging costs can be included as medical expenses. If the primary purpose is custodial care or convenience, only specific medical care components are deductible, not general living expenses. The focus must be on the medical necessity of the services.
Deductible and Non-Deductible Assisted Living Costs
Once an individual is certified as chronically ill with a plan of care, specific assisted living expenses may be deductible. Fees directly attributable to medical care are deductible. This includes nursing services, medication management, wound care, and medical supervision. Personal care services, such as help with bathing, dressing, and eating, are also deductible if provided per the plan of care for a chronically ill individual.
Meals and lodging can also be deductible. If the primary reason for assisted living is medical care, meals and lodging costs charged by the facility can be included as deductible medical expenses. For individuals meeting chronic illness and plan of care requirements, the entire cost of their stay could be a medical expense, not just direct medical services. However, if medical care is not the principal reason for residence, the deduction for meals and lodging is limited to the medical care portion.
Conversely, certain assisted living costs are not deductible. Fees for purely personal or social activities unrelated to medical care are not deductible. Meals and lodging expenses are non-deductible if the primary purpose of the stay is not medical care, such as when the individual does not meet the chronically ill definition or lacks a certified plan of care. General living expenses, like basic rent or utilities for a non-medical purpose, are also not eligible for deduction.
Documenting and Claiming the Deduction
Meticulous record-keeping is essential for deducting assisted living expenses. Taxpayers should retain all itemized bills and statements from the assisted living facility. Obtain and keep the chronic illness certification from the licensed healthcare practitioner and a copy of the prescribed plan of care. These documents prove the individual meets the necessary health and care requirements for the deduction.
Facilities often provide itemized statements separating medical care costs from non-medical living expenses, crucial for determining the deductible portion. Maintaining detailed records helps substantiate the claim if the IRS requests verification. Taxpayers should also keep records of any reimbursements from insurance or other sources, as only unreimbursed expenses are deductible.
Total qualifying medical expenses, including assisted living costs, are reported on Schedule A (Form 1040) under the medical and dental expenses section. After totaling eligible medical expenses, the Adjusted Gross Income (AGI) threshold applies. Only expenses exceeding 7.5% of AGI are deductible. While this outlines the general process, individuals with complex financial situations or substantial medical expenses should consult a tax professional. Professionals can provide personalized guidance and help ensure all eligible deductions are properly claimed.