Can You Deduct Assisted Living Costs on Your Taxes?

Navigating the financial aspects of assisted living can be complex, especially regarding tax implications. While costs are substantial, certain expenses may qualify for a tax deduction. The Internal Revenue Service (IRS) offers specific guidance on deductible medical expenses, which can extend to various facets of assisted living care.

Understanding Medical Expense Deductions

The ability to deduct medical expenses on a federal income tax return requires itemizing deductions on Schedule A (Form 1040). Only the amount of qualified medical and dental expenses exceeding 7.5% of the taxpayer’s adjusted gross income (AGI) is deductible. For example, if an individual’s AGI is $50,000, the first $3,750 of medical expenses are not deductible. This deduction applies to medical expenses paid for the taxpayer, their spouse, and their dependents. Expenses reimbursed by insurance or other means are not deductible.

Qualifying for the Deduction

For assisted living costs to be deductible, the individual receiving care must meet specific health criteria. Care must qualify as “medical care” under IRS guidelines, meaning it is primarily for diagnosis, treatment, or prevention of disease, or for treatments affecting bodily function. General health benefits or custodial care typically do not qualify.

The individual must be certified as “chronically ill” by a licensed healthcare practitioner within the past 12 months. This means the individual cannot perform at least two activities of daily living (eating, toileting, transferring, bathing, dressing, or continence) without substantial assistance for at least 90 days due to a loss of functional capacity. Alternatively, an individual requiring substantial supervision due to severe cognitive impairment, such as Alzheimer’s disease, to protect them from health and safety threats, also qualifies as chronically ill. Services must also be provided according to a plan of care prescribed by a licensed healthcare practitioner.

Deductible Assisted Living Expenses

If an individual qualifies as chronically ill and their care is part of a prescribed plan, various assisted living expenses may be deductible. Direct medical care components, such as nursing care, medical supervision, and therapy services provided within the facility, are generally deductible. This also extends to personal care services, including assistance with activities of daily living such as bathing, dressing, and eating, as these directly address the chronic illness.

Lodging and meal costs within an assisted living facility are generally not deductible on their own. However, if the primary reason for the individual’s residence in the facility is to receive medical care, then the entire cost of meals and lodging can be included as a medical expense. If the medical care is not the principal reason, only the portion of the cost directly attributable to medical care is deductible. Expenses for recreational activities, amenities, or non-medical services that are not part of the prescribed plan of care are typically not deductible.

Claiming the Deduction

To claim the medical expense deduction for assisted living costs, taxpayers must compile all qualified unreimbursed medical expenses paid during the tax year. This total amount is then entered on Schedule A (Form 1040). The calculation involves subtracting 7.5% of the taxpayer’s Adjusted Gross Income (AGI) from the total qualified medical expenses. Only the amount exceeding this 7.5% AGI threshold is the deductible portion.

Maintaining thorough records is important for substantiating the deduction in case of an IRS inquiry. This includes receipts for payments, certifications from licensed healthcare practitioners regarding chronic illness and the plan of care, and itemized statements from the assisted living facility detailing the services received. While documentation is not submitted with the tax return, it should be kept with other tax records.