Is Independent Living Tax Deductible?
Navigate the tax deductibility of independent living. Clarify IRS rules for medical care expenses and how they apply to your costs.
Independent living expenses are generally not tax deductible, as they are considered personal living costs similar to rent or groceries. However, exceptions exist when these expenses are primarily for medical care. The Internal Revenue Service (IRS) allows deductions for certain medical expenses, and under specific circumstances, portions of independent living costs may qualify if directly related to medical treatment or care.
Understanding Deductible Medical Expenses
The Internal Revenue Service (IRS) defines medical care broadly for tax deduction purposes. It includes costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any structure or function of the body. These expenses must primarily serve to alleviate or prevent a physical or mental defect or illness, rather than simply promoting general health. For example, fees paid to doctors, surgeons, dentists, and other medical practitioners are deductible.
A clear distinction exists between expenses for medical care and those for general living. Basic living expenses, such as rent, utilities, and food, are not considered medical expenses, even if an individual has a medical condition. However, if these costs are provided as part of a medical facility or primarily for medical care, they may become deductible.
Taxpayers can deduct only the amount of qualified unreimbursed medical expenses that exceeds 7.5% of their Adjusted Gross Income (AGI). For instance, if an individual’s AGI is $50,000, the first $3,750 (7.5% of $50,000) of medical expenses are not deductible. Medical expenses can be claimed for the taxpayer, their spouse, or a dependent.
Qualifying Independent Living Expenses
For any portion of independent living costs to be deductible, the primary reason an individual resides in the facility or receives specific services must be for medical care. If the main purpose of the stay is medical care, even meals and lodging within a medical facility can be deductible.
Specific services within an independent living setting that can qualify as medical expenses include nursing services, personal care services for medical reasons, and various therapies like physical or occupational therapy. These services must be medically necessary and prescribed by a licensed healthcare practitioner. For instance, assistance with daily living activities, such as bathing, dressing, or feeding, can be deductible if provided due to a medical condition.
Conversely, general living expenses like basic rent for the independent living unit, standard utilities, and non-medical food are not deductible. These costs are considered personal expenses, even when part of a package within an independent living facility. Therefore, it is important to obtain itemized statements from the facility that clearly separate medical care costs from personal living expenses. This detailed breakdown is essential for substantiating any deduction.
Costs for a “chronically ill” individual can also be deductible if provided in a qualified long-term care facility or as part of a plan of care. A chronically ill individual is certified by a licensed healthcare practitioner as being unable to perform at least two activities of daily living for at least 90 days, or requiring substantial supervision due to severe cognitive impairment. The care provided must be under a plan of care prescribed by a licensed healthcare practitioner.
Calculating and Claiming the Deduction
To calculate the medical expense deduction, all qualifying unreimbursed medical expenses for the tax year must be aggregated. This total includes payments for medical services, supplies, and certain long-term care services that meet IRS criteria. Only include expenses not compensated by insurance or other reimbursements.
Once total qualifying medical expenses are determined, the Adjusted Gross Income (AGI) threshold must be applied. Taxpayers can deduct only the amount of these expenses that exceeds 7.5% of their AGI. For example, if an individual has an AGI of $60,000 and total qualified medical expenses of $8,000, the non-deductible portion is $4,500 (7.5% of $60,000). The deductible amount would then be $3,500 ($8,000 – $4,500).
These deductions are claimed on Schedule A (Form 1040), Itemized Deductions. Taxpayers must itemize their deductions rather than taking the standard deduction to claim medical expenses. Itemizing is advantageous only if the total of all itemized deductions, including medical expenses, exceeds the standard deduction amount for a given filing status.
Record-keeping is important to support any medical expense deduction. This includes retaining itemized bills from independent living facilities or service providers, receipts for payments, and any medical diagnoses or doctor’s notes that substantiate the medical necessity of the services received. While these records are not submitted with the tax return, they must be kept in case the IRS selects the return for an audit. Consulting a qualified tax professional is advisable for personalized guidance, especially given the complexities associated with medical expense deductions and long-term care costs.