Can You Deduct Assisted Living Expenses?

The costs for assisted living, including housing, meals, and specialized care, can be substantial. The federal tax code, however, can provide financial relief by allowing for the deduction of certain assisted living expenses. Understanding the specific rules set by the Internal Revenue Service (IRS) is the first step in determining whether these costs can reduce a tax liability. This guide explores the criteria that both the resident and the facility must meet to identify qualifying expenses.

Eligibility for the Medical Expense Deduction

The ability to deduct assisted living costs hinges on the resident’s health status and the specific reason they reside in the facility. The IRS permits the deduction of expenses for medical care, but the definition is precise. To qualify, a licensed health care practitioner, such as a physician, must certify the resident as “chronically ill.” This certification must be renewed every 12 months.

A person is considered chronically ill if they are unable to perform at least two Activities of Daily Living (ADLs) without substantial assistance from another person. The inability to perform these tasks must be expected to last for a period of at least 90 days. The six ADLs are:

• Eating
• Toileting
• Transferring (moving in and out of a bed or chair)
• Bathing
• Dressing
• Maintaining continence

Alternatively, a resident can be certified as chronically ill if they require substantial supervision to protect them from threats to health and safety due to a severe cognitive impairment. This provision is frequently applied to individuals with Alzheimer’s disease or other forms of dementia. The certification and the underlying condition are necessary to qualify any expenses for a tax deduction.

Beyond the resident’s health, the primary reason for being in the assisted living facility is a determining factor. If the principal purpose of the residency is to receive medical care, the entire cost, including amounts paid for lodging and meals, can be treated as a medical expense. A formal plan of care prescribed by a licensed practitioner is strong evidence that the stay is primarily for medical reasons, as it outlines the specific services the resident requires.

Conversely, if the reason for living in the facility is primarily personal, such as for convenience or companionship, the tax treatment changes. In this situation, only the portion of the cost that is directly allocable to medical care is deductible. The costs for room and board would be considered non-deductible personal living expenses.

Calculating Deductible Assisted Living Costs

Once eligibility is established, the next step is to calculate the amount of assisted living costs that can be included with other medical expenses. The calculation method depends directly on the resident’s primary reason for being in the facility, as determined in the eligibility phase.

When medical care is the primary reason for the resident’s stay, the calculation is more inclusive. In this case, the taxpayer can count all fees paid to the facility as a medical expense. This includes the costs of lodging, meals, and any bundled services like laundry or housekeeping, in addition to direct medical services.

This all-inclusive approach relies on the initial determination that the stay is medically necessary. The plan of care prescribed by a licensed health care practitioner is the document used to substantiate this claim. Without it, the IRS may challenge the inclusion of non-medical costs like room and board.

The calculation becomes more specific if the primary reason for residency is personal. Here, only the expenses paid specifically for medical care qualify for the deduction. Common examples include charges for nursing services, medication administration, physical or occupational therapy, and transportation to medical appointments. The costs of lodging and meals are excluded.

To properly calculate a partial deduction, documentation from the assisted living facility is required. Taxpayers must request an itemized statement that clearly breaks down the monthly or annual fees. This statement should separate the charges for medical services from the charges for rent, food, and other personal services, as it serves as the primary evidence for the amount claimed.

Claiming the Deduction on Your Tax Return

Qualifying assisted living expenses are claimed on a federal income tax return. The deduction is only available to taxpayers who itemize deductions on Schedule A of Form 1040. This means forgoing the standard deduction, so the total of all itemized deductions should be greater than the standard deduction amount for the taxpayer’s filing status.

The main rule for deducting medical expenses is the Adjusted Gross Income (AGI) threshold. A taxpayer can only deduct the amount of total medical expenses that exceeds 7.5% of their AGI. For example, if a taxpayer has an AGI of $100,000, the 7.5% threshold is $7,500. If their total qualifying medical expenses are $40,000 for the year, they can deduct $32,500 ($40,000 – $7,500).

The deduction can be claimed by the resident who pays their own expenses, or by another person, such as an adult child, who pays on the resident’s behalf. For a child to claim the deduction, the parent must be a “qualifying relative” for medical expense purposes. This requires the child to have paid more than half of the parent’s total support for the year.

The rules for claiming a parent for medical expenses are more lenient than general dependency rules. Notably, the parent does not have to pass the gross income test. This exception allows a child to deduct medical expenses they paid for a parent with significant income, provided the support test is met.