Tax Time & the Possible Deductibility of Assisted Living Expenses

The 2020 tax season is upon us! Unfortunately, not a favorite time of the year for most of us! However, we do have some help below to perhaps lessen the load a bit if you have a loved one in assisted living!

Medical expenses typically make up a portion of the monthly service related fees at most assisted living communities. Your tax advisor should be familiar with the requirements to qualify for the medical tax deduction and how to best calculate the percentage of assisted living costs that qualify as deductible medical expenses, as some of the costs of assisted living may be tax deductible.

Typically, on can expect to deduct on Schedule A (Form 1040) only the amount of their medical and dental expenses that is more than 7.5% of the AGI; however, seeking guidance from a tax advisor is recommended to ensure that you maximize and follow current guidelines properly. As we all know things are constantly changing and evolving so seeking out guidance from an expert in the field is always the best approach as it will save time, money, and potential financial heart-ship.

In order for assisted living expenses to be considered as tax deductible, the resident must be considered and documented as chronically ill, meeting the following qualifications:

• Unable to perform at least two activities of daily living (ADLs) on their own. The six activities of daily living are: eating, dressing, bathing, transferring, toileting, and continence.

• Require substantial supervision due to a cognitive impairment such as Dementia.

The resident’s care must be provided by a licensed medical professional under a specific, specified care plan. Care plans are written guidelines and details for individualized care specific services for the resident, including assistance with various aspects fo daily living.

According to the Internal Revenue Code, the resident fees paid to a care community may qualify as “expenses for medical care” for purposes of an income tax deduction.

However, each resident's circumstances are individual and differ from one another, so it is advisable that one discuss this aspect with a tax advisor, accountant, and their care community to determine the appropriate and eligible medical care deductions.

It is also advisable to reference the IRS Publication 502: “Medical and Dental Expenses,” which provides an overview and guidance on the deductibility of medical costs.

Keep in mind that the deductibility of medical expenses can differ from prior years due to recent tax law changes. Therefore, this is always going to be an area to seek guidance on each tax year.

NOTE:

This blog is for general information purposes only. We recommend that all individuals consult a tax advisor to determine whether they are eligible for any tax deduction and, if so, the scope of the deduction. All tax related advise should come directly from a tax advisor.

IRS Link:

https://www.irs.gov/pub/irs-pdf/p502.pdf

Information about claiming parent as a dependent:

https://www.irs.gov/pub/irs-pdf/p501.pdf