What Percentage of Assisted Living Is Tax Deductible?

Assisted living can be a substantial financial burden, but certain expenses may offer tax relief. While not all assisted living costs are deductible, a portion can be considered medical care under specific Internal Revenue Service (IRS) guidelines. Understanding these conditions and qualifying costs helps taxpayers potentially reduce their financial obligations related to long-term care.

Conditions for Deductibility

For assisted living expenses to be tax-deductible medical care, specific IRS requirements must be met. “Medical care” includes services for diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any body function. This definition, established by the Health Insurance Portability and Accountability Act (HIPAA), also includes qualified long-term care services.

A primary condition is that the individual receiving care must be certified as “chronically ill.” The IRS defines a chronically ill individual as someone certified by a licensed healthcare practitioner within the preceding 12 months. This includes being unable to perform at least two of six “activities of daily living” (ADLs) without substantial assistance for at least 90 days due to functional capacity loss. The six ADLs are eating, toileting, transferring, bathing, dressing, and continence.

Alternatively, an individual is chronically ill if they require substantial supervision to protect themselves due to severe cognitive impairment, such as Alzheimer’s disease. This certification must be performed by a licensed healthcare practitioner, such as a physician, registered nurse, or licensed social worker, and must have occurred within the previous 12 months.

Beyond the individual’s health status, services must be provided pursuant to a “plan of care” prescribed by a licensed healthcare practitioner. This plan outlines the specific daily services the resident will receive, ensuring the care is medically necessary. Many assisted living facilities have staff who can help coordinate with the resident’s physician to prepare such a plan.

The facility must be licensed or regularly provide medical care. If the primary reason for an individual’s presence is to receive medical care, the entire cost, including meals and lodging, may be deductible, similar to a hospital stay. If the main reason for residence is not medical care, only the portion directly attributable to medical services is deductible.

Identifying Deductible Costs

Only the portion of expenses directly related to medical care and nursing services is deductible. This includes services that are diagnostic, preventive, therapeutic, curing, treating, mitigating, or rehabilitative. For instance, costs for medication management, skilled nursing care, and assistance with activities of daily living (ADLs) are considered deductible if provided due to chronic illness and under a plan of care.

Conversely, expenses for lodging, meals, and general personal care not incidental to medical care are generally not deductible. This includes the portion of the monthly fee covering rent, food, and non-medical personal services. However, if the individual is certified as chronically ill and is in the facility primarily for medical care under a prescribed plan, some or all room and board costs may become deductible. In such cases, lodging and meals are considered a necessary incident of the medical care provided.

To differentiate between medical services and non-deductible living expenses, obtain an itemized statement from the assisted living facility. This documentation is crucial for substantiating the deduction. It should clearly separate costs for medical and nursing services from general living expenses.

Detailed documentation from the facility is important. This includes itemized statements, the certification of chronic illness from a licensed healthcare practitioner, and the prescribed plan of care. These records demonstrate that the services meet IRS criteria for medical expense deductions. Without proper documentation, taxpayers may face challenges during an audit.

Submitting Your Tax Deduction

Medical expenses, including qualified assisted living costs, are deducted as itemized deductions on Schedule A (Form 1040). Itemizing deductions is only beneficial if the total of all itemized deductions (which include medical expenses, state and local taxes, home mortgage interest, and charitable contributions) exceeds the standard deduction for the taxpayer’s filing status.

Only the amount exceeding 7.5% of the taxpayer’s Adjusted Gross Income (AGI) is deductible. For example, if a taxpayer’s AGI is $60,000, only medical expenses over $4,500 (7.5% of $60,000) can be deducted. If total qualified medical expenses are $10,000, the deductible amount would be $5,500 ($10,000 – $4,500). This threshold means many taxpayers may not reach the level required to claim a deduction.

Thorough records are important for substantiating medical expense deductions. This includes medical diagnoses, the certified plan of care, itemized invoices from the assisted living facility, and proof of payments. While these documents are not submitted with the tax return, they must be kept with tax records for IRS verification.

When preparing the tax return, total qualified unreimbursed medical and dental expenses are entered on Schedule A (Form 1040). The AGI is also reported on this schedule, and the 7.5% threshold calculation is performed directly on the form. Tax software or a tax professional can assist in accurately entering these figures and ensuring all conditions are met for the deduction.