How Much of Assisted Living Is Tax Deductible?

Understanding the tax implications of assisted living expenses can be complex. While costs are substantial, certain expenses may be eligible for tax deductions. Deductibility is not automatic and depends on specific criteria related to the resident’s health status and services received. Knowing these requirements helps families alleviate financial burden through tax benefits.

Qualifying as Medical Care

For assisted living expenses to be tax deductible, services must primarily qualify as medical care under Internal Revenue Service (IRS) guidelines. The IRS defines medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease. This definition extends to qualified long-term care services.

A key requirement for long-term care services to qualify is that the individual receiving care must be certified as chronically ill. A person is considered chronically ill if a licensed health care practitioner has certified within the previous 12 months that they are unable to perform at least two activities of daily living (ADLs) without substantial assistance for at least 90 days due to a loss of functional capacity. ADLs include essential self-care tasks such as eating, bathing, dressing, toileting, transferring, and maintaining continence.

Alternatively, an individual may also qualify as chronically ill if they require substantial supervision to protect themselves from threats to health and safety due to severe cognitive impairment. Conditions like Alzheimer’s disease or other forms of dementia, which impact memory, reasoning, or judgment, fall under this criterion. The certification of chronic illness must come from a licensed health care practitioner, such as a physician, registered professional nurse, or licensed social worker.

Beyond the individual’s health status, long-term care services must be provided pursuant to a plan of care prescribed by a licensed health care practitioner. This plan outlines the specific daily services the resident will receive, ensuring the care is medically necessary. This requirement is essential for assisted living expenses to be considered for tax deduction.

Deductible Expenses within Assisted Living

Once an individual qualifies as chronically ill and their care is provided under a prescribed plan, specific expenses within an assisted living facility become deductible. These deductible costs primarily relate to the medical and personal care services received. Examples include nursing services, assistance with activities of daily living like bathing and dressing, and supervision for individuals with cognitive impairments.

A portion of assisted living lodging costs can be deductible under certain conditions. If the primary reason for being in the facility is to receive medical care, and that care is provided according to a plan prescribed by a licensed health care practitioner, then meals and lodging costs may also be included as medical expenses. This is similar to how room and board are treated in a hospital setting when medical care is the main purpose of the stay.

For individuals who are not chronically ill, only the portion of assisted living expenses directly attributable to medical care is deductible. The facility provides an allocation of fees between medical and non-medical components. However, for chronically ill individuals receiving care under a plan, a larger portion, including lodging and meals, can be considered medical expenses.

Non-Deductible Expenses within Assisted Living

While many services in an assisted living facility can be deductible, it is important to distinguish between medical care and general living expenses. Costs for basic room and board are not deductible if the primary reason for residency is not medical care. This means if an individual resides in assisted living for convenience or social reasons rather than a certified medical need, the fundamental housing costs do not qualify.

Other common expenses that are not considered tax-deductible include those for recreational activities, social services, and amenities not directly related to medical or personal care. For instance, charges for entertainment, personal grooming services, or general wellness programs that are not prescribed as part of a medical care plan would not qualify. Similarly, non-prescription medicines, toiletries, and cosmetic procedures are not deductible.

The IRS focuses on expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness. Therefore, costs that are merely beneficial to general health or are for personal convenience, rather than direct medical treatment or assistance with chronic conditions, fall outside the scope of deductible medical expenses.

Calculating and Claiming the Deduction

To claim assisted living expenses as a tax deduction, taxpayers must itemize their deductions on Schedule A (Form 1040), Itemized Deductions. This means that the total of all itemized deductions, including medical expenses, must exceed the standard deduction for the taxpayer’s filing status. If the standard deduction is higher, it makes more financial sense to claim the standard deduction.

A significant limitation applies to medical expense deductions: only the amount exceeding 7.5% of the taxpayer’s Adjusted Gross Income (AGI) is deductible. For example, if a taxpayer has an AGI of $50,000, the first $3,750 (7.5% of $50,000) of qualified medical expenses are not deductible. Only the portion of expenses above this threshold can be claimed. If the total qualified medical expenses were $10,000, the deductible amount would be $6,250 ($10,000 – $3,750).

Record-keeping is important for substantiating deductions. Taxpayers should retain all relevant documentation, including the certification of chronic illness from a licensed health care practitioner, the prescribed plan of care, and itemized bills from the assisted living facility. These bills should clearly separate charges for medical care and personal care services from non-medical expenses. Proof of payments is also necessary.