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Getting Ready for Tax Season: Is Assisted Living Tax-Deductible?

Getting Ready for Tax Season: Is Assisted Living Tax-Deductible?

Wondering how senior living fits into your overall financial plan? Whether you’re researching senior living options or you’re already part of a thriving senior living community, it never hurts to look for ways to offset your expenses. While there are a variety of options that may offset some costs — like long-term care insurance, veterans’ assistance, community waivers, or other incentives — tax deductions are often the most effective way to cut costs and find a measure of financial relief. 

Senior living tax deductions can help ease your financial burden. Read on to learn some tax information that can be helpful. 

Understand Your Loved One's Living Arrangement

Before you determine whether your or a loved one’s senior living expenses are tax-deductible, you need to consider the living arrangement. Some situations offer no tax benefits, while others do. Here's a brief guide to typical senior living environments and how they affect your taxes:

Independent living

In general, independent living expenses aren’t tax-deductible — unless you’re part of a Life Plan or continuing care retirement community. Most traditional independent living situations don’t offer tax deductions.

In-home care

Do you or a loved one receive medical services from a visiting caregiver at home? Some of the expenses you incur can be written off on taxes, but they must be related to medical services. Some of the typical expenses you can write off include chronic disease management, medication management, wound care and more.

Assisted living

If you or a loved one lives in an assisted living community, you may be able to write off some of your expenses. Before you can itemize your deductions, a nurse or physician must verify that the resident can’t perform at least two activities of daily living, like bathing, eating, grooming, toileting, etc.

If this requirement is met, the resident must also follow a care plan that details the assistance they need. Then, if medical expenses related to assisted living care are greater than 7.5% of the person’s adjusted gross income, 100% of the monthly fee can be considered a medical expense and be written off.

Memory care

Costs associated with memory care may be tax-deductible. The guidelines for itemizing medical expenses are the same as those for assisted living — the person must either need assistance with at least two daily living activities or have cognitive decline. Most memory care residents already meet the latter requirement. Again, if medical expenses total more than 7.5% of the resident’s gross adjusted income, they’re tax-deductible.

What’s Tax-Deductible and What’s Not?

There are several tax-deductible medical services that seniors can claim on their taxes, when appropriate to their living situation. While seniors who live in assisted living communities, for example, can’t deduct general health costs like vitamins or health club dues, there are common medical expenses that can be written off, including:

  • Dental expenses, like dentures, fillings, x-rays and orthodontic services;

  • Expenses incurred as a result of medical need, like medical transport or parking fees;

  • Health insurance premiums;

  • Meals and lodging at a hospital if the primary reason for entry is to receive medical care;

  • Mental health expenses, like therapy or medications;

  • Nursing services, even if the person performing them isn’t a nurse;

  • Prescription drug costs and insulin.

There are many other medical expenses that qualify for deductions. In general, follow these rules to determine whether assisted living or memory care expenses can be written off:

  • A healthcare professional must certify the person is chronically ill and unable to perform at least two activities of daily living on their own; or if the person needs assistance due to dementia, Alzheimer’s disease or another cognitive impairment for 90 days.

  • The medical services must be performed as part of a plan of care prescribed by a doctor, nurse or social worker. 

Keep in mind, adult children who cover the cost of a loved one’s medical care may also be eligible for certain tax deductions.

How to Itemize (and Why It’s Important)

Seniors — or adults who pay for a senior’s care — must itemize medical expenses on a Schedule A Form to claim tax deductions. Make sure to reach out to an accountant or financial advisor — or the senior living community, if applicable — to research all tax-deduction possibilities. Thankfully, itemizing isn’t as difficult as it sounds and many tax preparation programs and services offer tools for automating documentation. Just make sure to save your receipts!

A Tax Professional Can Help

Senior living comes at a cost and keeping expenses low is a top priority for many seniors and their families. Navigating the tax benefits associated with senior living can be challenging. Reach out to your trusted tax professional to ensure you or your loved one is making the most of all the available tax deductions at your disposal. 

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