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Get the Facts on Assisted Living Tax Deductions

The number of Americans over the age of 65 continues to become a larger part of our population. The growing percentage of seniors means that there are now more options than ever before focused on senior services, senior living and senior health care. However, with all these choices, many people do not know how to find the right fit for themselves or their loved ones. In addition to wondering what options are the right ones, there are many questions around how to pay for senior care services.

If you are approaching your golden years, or if you are a caregiver for an elderly loved one, it is important to understand the financial implications of senior care, the financial support available and how assisted living tax deductions work.

How Do I Pay for Assisted Living?

There are currently more than 800,000 Americans who call assisted living facilities (ALFs) home. However, the way each of those individuals pays for their care may differ greatly. An individual’s financial strategy to pay for senior care often depends on the financial situation of the person, as well as what services they require within an ALF. Here are the most common ways seniors pay for assisted living care around the US:

  • Paying out of pocket
  • Utilizing government programs, such as Medicare and Medicaid Services
  • Investing in long-term care insurance
  • Using life insurance policies for long-term care
  • Enrolling in the Program of All-Inclusive Care for the Elderly (PACE)
  • Veterans may receive benefits from the Department of Veterans Affairs
  • Leveraging the National Council on Aging (NCOA) to find state and federal programs that offer benefits

Understanding Assisted Living Tax Deductions

Once you have selected an assisted living facility and made a financial plan, there are still opportunities for savings. As a resident of an ALF, some or all of your costs for care may qualify for the medical expense tax deduction. Based on the Internal Revenue Service (IRS) standards, a person may deduct only the amount of their total medical expenses that exceeds 7.5% of their adjusted gross income. Additionally, there are a few other standards that must be met to earn the assisted living tax deduction:

  • Personal care services must be provided based on a plan of care prescribed by a licensed health care provider. It is important to note that most assisted living facilities do have physicians, nurses or social workers who prepare the individual care plans for their residents.
  • ALF residents must be considered chronically ill, meaning that a doctor or nurse must have certified that the resident meets one of these two requirements:
    • The resident cannot independently perform at least two activities of daily living (ADLs), such as bathing, dressing or eating
    • The resident must require supervision because of cognitive impairment, including but not limited to Alzheimer’s disease or dementia

Commonly Asked Questions about Assisted Living Tax Deductions

While there is information available online and through elder law experts regarding taxes and assisted living expenses, new questions still arise all the time. Here are some commonly asked questions regarding assisted living tax deductions:

Is assisted living memory care tax deductible?

If you or a loved one is receiving memory care, part or all of the cost may qualify for the medical expense tax deduction. Memory care is considered a long-term care service, which is allowed as a deductible expense according to the 1996 Health Insurance Portability and Accountability Act (HIPAA). The criteria is much the same as the standard assisted living requirements. Here are the qualifications to make assisted living memory care tax deductible:

  • The resident must be considered to be chronically ill and must meet one of these two qualifications – they are unable to perform at least two ADLs on their own OR they require heavy supervision because of a cognitive impairment.
  • The resident’s care must be provided by a licensed medical professional and must follow a specific care plan. In the case of patients with Alzheimer’s and other forms of dementia, care plans may be administered at a memory care community or by an in-home memory care provider.

Can you deduct long-term care expenses?

If you or a loved one is in need of long-term care, you may be eligible to deduct a portion of the costs on your tax return. If you have invested in long-term care insurance, you may be able to deduct some of your premiums, as well. Here are the important points to understand if you wish to deduct long-term care expenses:

  • Long-term care must be deemed medically necessary to qualify for the tax deduction. The care can include rehabilitation, personal care, therapeutic care and other services. The costs of meals and living expenses may also qualify at an assisted living facility if the reason for living at the ALF is to receive medical care.
  • The person must be chronically ill and receiving care under a prescribed and supervised care plan, and must be under the care of a health care practitioner. The person is considered chronically ill if he or she cannot perform at least two ADLs without help for at least 90 days. The condition of the individual must be certified in writing within the last year.
  • The person must itemize deductions on their tax return. Itemized deductions for medical expenses are only allowed for expenses that exceed 7.5 percent of the person’s adjusted gross income.
  • An adult child is eligible to claim the medical expense deduction on his or her own tax return for the cost of a parent’s care if that individual can legally claim the parent as a dependent.
  • The limited deduction available for certain long-term care insurance premiums is an itemized deduction for medical expenses. This means that only that only those expenses that exceed the 7.5 percent threshold are deductible.
  • The deduction has an age-related cap. For the year 2021, if you are 70 or older, the cap is $5,640. If you are between the ages of 61 and 70, the cap is $4,520.

Are moving expenses to assisted living tax deductible?

In a change that took place in 2017, the moving expense deduction (Form 3903) is no longer valid for moving expenses to assisted living. For the tax years 2018 through 2025 only military members who are ordered to move as a result of a permanent change of station are eligible to use a tax deduction for moving expenses.

Looking Ahead

For the residents and families of St. Paul’s Senior Community, there are many support programs and offerings available to ease the transition to a new living environment. In addition to our unique ability to provide all levels of care, our experienced team is ready and willing to help with any questions or concerns while you plan your future. Contact us today to learn more.