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If you’ve started navigating the world of residential care for one or both of your parents, you’ll probably already know that assisted living is expensive. A natural response to high costs is to research how you can reduce them to more manageable levels. One option is to discover which expenses are tax deductible, but this can be challenging because the rules and regulations are complex and subject to change. It’s estimated the tax code has been adjusted over 4,000 times in the past 10 years.
This article offers clear and concise information to help you see through the fog of rules and regulations. It covers the most important subjects relating to tax deductions and assisted living expenses, including who is eligible, which costs qualify, which don’t and how to calculate tax-deductible expenses. It can also help you determine if you can deduct your parents’ assisted living costs from your taxes.
Who Is Eligible for Assisted Living Tax Deductions?
Eligibility for assisted living tax deductions isn’t a given, so let’s look at some of the IRS requirements that determine if a person can deduct assisted living expenses from their taxes. The most important of these is that the person must be defined as chronically ill. Consequently, you’ll need to have evidence from a doctor, occupational therapist or registered nurse that your parent can’t perform at least two activities of daily living (ADLs) without assistance or that they must be regularly supervised because of cognitive impairment. You’ll also need to show that a licensed care provider has developed and prescribed your parent’s personal care plan. Don’t assume your parent’s assisted living community has a care plan because there’s no federal requirement for it to do so, although most of them do.
Let’s look at ADLs and personal care plans in more detail.
Assistance With 2 or More ADLs
In assisted living, a routine task carried out as part of daily life is referred to as an ADL. However, to be deemed chronically ill and eligible for tax deductions, your parent must be recognized by a licensed health care professional, such as a physician, registered nurse or social worker, as being unable to perform at least two ADLs without assistance. Additionally, if your parent has severe memory loss issues, such as Alzheimer’s, the certification of a licensed health care provider is required to claim deductions for long-term care medical expenses.
The appropriate health care professionals will conduct an ADL test to determine if the senior doesn’t have the functional capacity to perform ADLs for at least 90 consecutive days. The test includes the assessment of the following:
- Control of their bladder and bowels (known as continence)
- Bathing (which includes brushing their teeth and shaving)
- Transferring (such as getting in and out of bed)
Professional Care Plan
A professional care plan is a unique document that outlines your parent’s personal needs and requirements in their assisted living facility. The plan is created by a licensed health care professional, such as a nurse or social worker, in collaboration with your parent, the facility’s staff and yourself and other family members.
The care plan typically includes information about your parent’s medical history, current health status, medications, dietary requirements, mobility and cognitive functioning (as well as other relevant factors). It also outlines the specific services and supports they require, such as assistance with ADLs, medication management and health care monitoring. The IRS won’t consider tax deductions unless a licensed health care professional has developed the plan.
Can You Deduct a Loved One’s Expenses From Your Taxes?
In addition to your expenses, you can also deduct those of your spouse and dependents. To clarify, a dependent is an individual who receives a minimum of 50% of their financial support from you within a year, such as your child (including a stepchild and foster child) and your siblings and parents. However, you may still qualify for deductions if you contribute at least 10% of your parent’s financial support as part of a multiple support agreement with others. This joint agreement must cover at least half of your parent’s support expenses, and all participants must sign a Multiple Support Declaration.
Whatever the circumstances, the expenses must be related to medical care that isn’t covered by insurance or any other program. For example, only your parent’s actual medical expenses in their assisted living facility can be claimed — not additional costs, such as the room rent and meals. However, if they transfer to a nursing home for some time, you can claim all their expenses. It’s important to note that you can only claim a deduction on your taxes for medical costs incurred or paid for during the year of your claim.
Criteria To Claim Parent as a Dependent
The criteria for claiming your parent as a dependent are:
- The person must be a qualifying relative as per the IRS definition of relatives who don’t necessarily have to live with you or must live with you throughout the year as a household member without violating local laws.
- Your parent’s gross income for the year should not be over $4,400.
- You should provide over 50% of their total support for the year (or 10% if you’re in a joint agreement with other family members).
- Your parent should be either a U.S. citizen, a resident alien or a citizen of Mexico or Canada.
What Assisted Living Expenses Are Tax Deductible?
The following overview should make it easier for you to see which assisted living expenses are tax deductible, which ones can be and which aren’t.
Tax-Deductible Assisted Living Services and Medical Care Expenses
- Assistance with ADLs included in a professional care plan developed by a licensed health care professional
- Medical care provided by physicians, nurses and other licensed health care professionals
- Doctor-prescribed medicines and drugs
- Transportation to and from medical appointments
- Qualifying long-term care insurance contracts
Other Tax-Deductible Assisted Living and Related Expenses
- Wheelchairs and crutches
- Prescribed medical equipment, such as eyeglasses, contact lenses and hearing aids (including batteries)
- Eye exams and eye surgery
- Operations, but not cosmetic surgery
- Medical equipment
- Laboratory fees and X-rays and other imaging tests for medical purposes
- Dental costs, including dentures but not including teeth whitening
- Weight loss programs for a disease, such as diabetes
- Stop-smoking programs
- Devices used to diagnose and treat diseases and illnesses, such as blood-sugar kits for diabetics
- Visits to centers treating conditions such as alcoholism
Assisted Living, Medical and Other Related Costs Not Eligible for Tax Deductions
- Room and board expenses, such as room rent, laundry and meals
- Costs for recreational activities, such as outings
- Cosmetic treatments, including hair styling
- Nonprescription medications
- ADLs not included in a professional care plan developed by a licensed health care professional
How to Calculate Assisted Living Tax Deductions
To qualify for a tax deduction, your assisted living expenses must exceed 7.5% of your adjusted gross income. Follow these three steps to determine if you meet the threshold:
- Identify the expenses you may be eligible for by referring to Publication 502.
- Use Schedule A (Form 1040) to itemize your eligible expenses.
- Calculate your medical expense tax deduction using this formula: Medical Expense Tax Deduction = Sum of Qualifying Medical Expenses – (Adjusted Gross Income * 0.075).
For example, if your adjusted gross income is $50,000, the first $3,750 of your un-reimbursed medical expenses ($50,000 * 0.075) doesn’t count toward the deduction. Any un-reimbursed expenses beyond that may be tax deductible.
It’s important to note that tax laws are complex and subject to change. Therefore, it’s advisable to consult a tax professional who can assess your calculations, determine your eligibility for deductions and ensure you claim everything you’re entitled to.