Is Assisted Living for Dementia Tax Deductible?

Assisted living for individuals with dementia presents substantial financial considerations for families. Understanding which of these expenses may be tax deductible can offer some financial relief. The Internal Revenue Service (IRS) provides specific guidelines for deducting medical expenses, including those related to long-term care and assisted living, under certain conditions.

Understanding What Qualifies as a Medical Expense

Not all costs associated with assisted living are eligible for tax deductions; only the portion directly attributable to medical care or qualified long-term care services is generally deductible. This includes services designed for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Qualified long-term care services encompass necessary diagnostic, preventive, therapeutic, and rehabilitative services, along with maintenance or personal care services for a chronically ill individual.

A person is considered “chronically ill” for tax purposes if a licensed healthcare 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. These ADLs include eating, bathing, dressing, continence, toileting, and transferring. An individual is also deemed chronically ill if they require substantial supervision to protect themselves from threats to health and safety due to severe cognitive impairment, such as dementia. For the services to qualify as deductible, they must be provided according to a “plan of care” prescribed by a licensed healthcare practitioner.

While room and board are typically considered non-deductible personal expenses, this rule changes if the individual resides in the facility primarily to receive medical care. If the main reason for being in the assisted living facility is to obtain medical care, then the entire cost of maintenance, including meals and lodging provided by the facility, can be included as a medical expense. The assisted living facility often provides a breakdown of services, distinguishing between medical care and other charges, which is helpful for tax purposes.

Determining Who Can Claim the Deduction

Medical expenses, including those for assisted living, can be deducted by the taxpayer, their spouse, or a qualifying dependent. To claim someone as a qualifying dependent for tax purposes, several criteria must be met.

One of the primary requirements for a qualifying relative is passing the “support test,” which means the taxpayer must provide more than half of that individual’s total support for the year. Support includes expenses such as food, lodging, clothing, medical and dental care, transportation, and other necessities. Additionally, the qualifying relative’s gross income must be less than a specific amount, which for 2024 is $5,050. The individual must also be a U.S. citizen, resident alien, or national, or a resident of Canada or Mexico, and cannot be a qualifying child of another taxpayer.

In situations where multiple individuals collectively provide more than half of a person’s support, but no single person provides over half, a “multiple support agreement” may be used. Under such an agreement, those contributing more than 10% of the support can agree that one of them will claim the dependent. The other contributors who are part of the agreement must sign a written statement, such as IRS Form 2120, agreeing not to claim the dependent for that year.

Applying the Adjusted Gross Income Threshold

The ability to deduct medical expenses, including qualified assisted living costs, is subject to a limitation based on your Adjusted Gross Income (AGI). Only the amount of qualified medical expenses that exceeds a certain percentage of your AGI can be deducted. Currently, this threshold is 7.5% of your AGI.

To illustrate how this works, consider an example: if your AGI for the year is $60,000, then 7.5% of that amount is $4,500. If your total qualified medical expenses for the year amount to $10,000, you would subtract the $4,500 threshold, leaving $5,500 as the deductible amount.

This threshold means that taxpayers with lower medical expenses relative to their income may not be able to claim a deduction. Taxpayers must itemize their deductions to claim medical expenses, rather than taking the standard deduction. If your total itemized deductions, including medical expenses, do not exceed your standard deduction, then itemizing may not provide a tax benefit.

Necessary Documentation and Filing Considerations

To substantiate claims for assisted living expenses as medical deductions, taxpayers must maintain thorough and accurate documentation. Essential records include detailed invoices and receipts from the assisted living facility. These documents should clearly itemize the services provided, distinguishing between medical care and other charges such as room and board. Proof of payment for these expenses is also necessary.

An important piece of documentation is the written “plan of care” prescribed by a licensed healthcare practitioner. This plan confirms the medical necessity of the services received and the individual’s chronic illness or severe cognitive impairment. Medical records or physician’s statements that verify the chronic illness and the need for care further support the deduction. Keeping these records readily available is important for verification purposes, particularly in the event of an IRS inquiry.

These qualified medical expenses are claimed as an itemized deduction on Schedule A (Form 1040), “Itemized Deductions.” Taxpayers electing to itemize deductions use Schedule A to list various deductible expenses, including medical and dental costs. The total amount of itemized deductions is then subtracted from Adjusted Gross Income, which can reduce the overall taxable income. Only the portion of medical expenses exceeding the 7.5% AGI threshold is entered on Schedule A.