Can You Deduct Assisted Living Expenses?

Navigating the complexities of tax deductions can be challenging, especially when it comes to healthcare costs. Many individuals and families inquire about the deductibility of assisted living expenses, which can be substantial. While general living expenses are typically not deductible, certain components of assisted living care may qualify. Understanding the specific conditions and requirements set forth by tax authorities is essential for determining if these expenses can reduce your tax liability.

Defining Qualifying Medical Care

Assisted living expenses are deductible for tax purposes only if they meet the Internal Revenue Service (IRS) definition of “medical care.” The primary reason for an individual’s presence in an assisted living facility must be to receive medical care, not merely for personal convenience or general living.

To satisfy this “primary reason” test, a licensed healthcare practitioner must certify that the individual is chronically ill. A person is considered chronically ill if they are unable to perform at least two activities of daily living (ADLs), such as bathing, dressing, eating, toileting, transferring, or continence, for a period of at least 90 days due to a loss of functional capacity. Alternatively, a person requiring substantial supervision due to severe cognitive impairment, like Alzheimer’s disease or dementia, also meets the definition of chronically ill.

Once an individual is certified as chronically ill, services aimed at alleviating or preventing a physical or mental disability or illness qualify as medical care. This includes professional nursing services, medical treatments, and various therapies like physical, occupational, or speech therapy. It is important to distinguish these from non-deductible personal care services, such as assistance with dressing or bathing, or general living expenses like basic lodging, unless the primary reason for being in the facility is for medical care. A care plan prescribed by a licensed healthcare practitioner is necessary to substantiate the medical necessity of these services.

Specific Deductible Assisted Living Costs

Direct medical expenses, such as nursing care, medical treatments, prescription medications, and various therapies, are generally deductible. These are services provided to diagnose, cure, mitigate, treat, or prevent disease.

If the individual resides in the facility primarily to receive medical care, the entire cost of meals and lodging can be included as a medical expense. This is an exception to the general rule that ordinary living costs are not deductible. However, if the primary reason for residency is not medical care, then only the portion of the cost specifically attributable to medical services is deductible, and the room and board are not.

Facilities often provide statements allocating charges between medical and non-medical components. Taxpayers should understand that if the primary reason test is met, more than the stated medical component might be deductible. Services like assistance with activities of daily living (ADLs) are considered medical in nature for chronically ill individuals, even if not administered by a registered nurse. Non-medical expenses, such as social activities or general personal care not tied to a chronic illness, are typically not deductible.

Deducting Expenses for Another Individual

Taxpayers frequently pay for the assisted living expenses of a parent or another relative. The IRS allows taxpayers to include medical expenses paid for themselves, their spouse, and their dependents. For expenses paid on behalf of another individual, that person must be a qualifying child or qualifying relative of the taxpayer.

To claim someone as a qualifying child, they must meet age, relationship, residency, and support tests. A child must be under a certain age (e.g., under 19, or under 24 if a full-time student), younger than the taxpayer, and live with the taxpayer for more than half the year. They must also not provide more than half of their own support.

An individual can be claimed as a qualifying relative if they meet specific criteria. The person’s gross income must be below a certain threshold, which for 2024 is $5,050. The taxpayer must provide more than half of the individual’s total support for the year. Additionally, the person must either live with the taxpayer all year as a member of their household or be related to the taxpayer in a specific way, such as a parent, grandparent, or sibling.

Claiming the Deduction

Assisted living expenses that qualify as medical care are claimed as itemized deductions. Taxpayers report these medical and dental expenses on Schedule A (Form 1040) of their federal tax return. Only the amount of qualified medical expenses exceeding 7.5% of the taxpayer’s Adjusted Gross Income (AGI) is deductible. For example, if a taxpayer’s AGI is $50,000, only medical expenses over $3,750 (7.5% of $50,000) can be deducted.

Taxpayers must choose to itemize deductions rather than taking the standard deduction. If the total itemized deductions, including medical expenses, exceed the standard deduction, itemizing may be beneficial. Meticulous record-keeping is essential for substantiating these deductions. This includes retaining receipts, itemized invoices from the assisted living facility, medical records, and physician’s certifications that attest to the medical necessity and chronic illness.