Is Assisted Living Tax Deductible?

Figuring out how to pay for assisted living can give you gray hairs. Caregivers undergo so much emotional and financial stress. Support doesn't come cheap—it can break the bank if you don't explore every resource imaginable. But you may count some climbing costs as deductible medical expenses and reap tax savings.

What is assisted living?

Assisted living facilities offer support and care services for aging adults who require help with activities of daily living (ADLs). It's a good option for those who want to live independently but need extra assistance. Residents live in private apartments and have access to personalized help 24/7. These services improve their quality of life and meet their changing needs as they age.

Is assisted living tax deductible?

Certain nursing home expenses can qualify as deductible medical expenses. If you, your spouse, or a dependent is residing in a nursing home primarily for medical care, then the full cost of the stay, including both meals and lodging, can be deducted as a medical expense. However, if the stay in the nursing home is mainly for non-medical reasons, only the expenses directly related to medical care are deductible. In this case, the costs of meals and lodging are not eligible for a medical expense deduction.

Qualified medical expenses

Taking care of a loved one comes with significant financial costs. Family caregivers often take time off work or even quit their jobs to provide care, leading to a loss of income. They may pay for medical expenses, transportation, and other caregiving costs, which adds up quickly and strains finances.

What are qualified medical expenses?

Qualified medical expenses encompass a broad range of costs associated with diagnosing, curing, mitigating, treating, or preventing disease and affecting any part or function of the body. These expenses are not limited to direct payments to physicians or hospitals. Here's a more detailed look:

• Medical services: Payments to healthcare professionals, such as doctors, dentists, and nurses, for their services.
• Prescriptions: Costs for prescription drugs and medications, as well as insulin.
• Medical equipment and supplies: Purchases or rentals of equipment and supplies prescribed by a healthcare professional. This includes items like wheelchairs, crutches, and modifications to the home for accessibility.
• Mental health care: Payments for psychological and psychiatric treatment.
• Preventive care: Expenses for preventive healthcare measures, including vaccinations, health screenings, and smoking cessation programs.
• Dental and vision care: Costs related to dental treatments, glasses, contacts, and exams.

The IRS provides a comprehensive list specifying qualified medical expenses, subject to updates and clarifications.

Are assisted living expenses considered qualified medical expenses?

Assisted living expenses can be considered qualified medical expenses under certain conditions. For these costs to be deductible, they must be primarily for medical care rather than for personal, living, or family expenses. Here's a breakdown:

• Medical care component: If an individual resides in an assisted living facility primarily for medical care, and a healthcare professional prescribes the care, those expenses related to medical care can be considered qualified medical expenses. This includes nursing care, physical therapy, and other services provided for the resident's health.
• Room and board: The portion of the assisted living costs that covers room and board can only be included as a qualified medical expense if the resident is there primarily for medical care and the care is being provided per a physician's advice.
• Personal and social services: Costs associated with personal services, such as help with activities of daily living (ADLs), or social activities, are not considered qualified medical expenses unless they are directly related to the care of a medical condition.

Can you claim these as a tax deduction?

Qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted from your taxes. Here's how to approach this deduction:

• Calculating deductible amount: To determine if you can claim a deduction, add up all your qualified medical expenses. If the total exceeds 7.5% of your AGI, you can deduct the amount that exceeds this threshold.
• Non-reimbursable costs only: Only expenses not reimbursed by insurance or other sources can be deducted. This means you can only claim out-of-pocket expenses.
• Documentation and records: Keeping detailed records and receipts of all medical expenses is crucial. This documentation should differentiate between medical care costs and non-deductible living costs. It should also substantiate the medical necessity of the services for which the expenses were incurred.

Assisted living care plans and services

Assisted living facilities offer a comprehensive suite of care plans and services designed to support the diverse needs of aging adults, providing a blend of health care, personal assistance, and social engagement opportunities. These services are pivotal in ensuring residents maintain a high quality of life, offering a tailored approach to meet the individual requirements of each resident. Here's a more in-depth look at the various aspects:

Services covered by assisted living facilities

Assisted living facilities are equipped to offer a wide range of services that cater to their residents' daily and medical needs. The core services typically include:

• Medication management: Ensuring residents take their prescribed medications promptly and correctly can be crucial for those with complex medication regimes.
• Personal care assistance: Providing help with daily living activities such as bathing, dressing, and grooming, which is particularly important for those who struggle with mobility or dexterity.
• Housekeeping and laundry: Keeping living spaces clean and managing laundry to ensure a comfortable and hygienic environment for residents.
• Meals: Offering nutritious meals that cater to residents' dietary needs and preferences, including those with specific health-related dietary restrictions.
• Dementia care: Specialized care and support for residents with dementia, including Alzheimer's, focusing on safety, engagement, and memory care.
• Transportation: Facilitating access to external medical appointments, shopping, and social outings, which helps maintain independence and social connections.

As residents' needs evolve, assisted living facilities can adjust the level of care provided, ensuring that each individual receives the appropriate support to match their changing requirements.

Care plans for tax deductions

For expenses to be considered for tax deductions, they must be primarily for medical, not personal, care. An individualized Plan of Care, typically prepared by a healthcare provider, outlines the specific medical services a resident requires. This plan distinguishes between deductible medical expenses and non-deductible personal care services. Itemized bills from the assisted living facility detailing charges for medical services are necessary for tax purposes to identify eligible costs.

Eligibility of personal care services for deductions

Personal care services provided in an assisted living setting may qualify for tax deductions if medical conditions necessitate them. This includes assistance with activities of daily living (ADLs) that the resident cannot perform independently due to illness, injury, or cognitive impairment. The IRS recognizes the importance of these services in ensuring the health and well-being of individuals requiring care.

Deduction limits

There is no upper limit to the amount of eligible medical expenses that can be deducted, provided these expenses exceed 7.5% of the individual's adjusted gross income (AGI). This policy allows for significant tax relief for individuals or families facing high medical and care-related expenses, making it essential to accurately document and claim all eligible expenses to reduce the overall tax burden.

When navigating the complexities of tax deductions related to assisted living expenses, consulting with a tax professional is advisable. They can provide tailored advice and ensure that all eligible expenses are accurately documented and claimed, maximizing the potential tax benefits while adhering to IRS regulations.

Daily living costs

Assisted living facilities provide housing, meals, and personal care services to seniors who can't live independently. The daily living costs at these facilities differ depending on the location, amenities, and level of care needed. As a family caregiver, remember to research and compare the costs of different assisted living facilities to find one that fits your loved one's needs and budget.

What does it cost to live in an assisted living facility?

In 2024, nationwide averages will range between $45,000 and $60,000 annually. Prices depend on location, room type, services required, and amenities chosen. Monthly costs typically cost around $4,000 but reach $10,000 for high-end communities.

How much do common services cost on a day-to-day basis?

Assisted living facilities are intended for aging individuals needing help with everyday tasks like dressing, showering, and managing their medication. It's an excellent option for those who don't require round-the-clock medical attention but still need assistance. The cost of assisted living depends on location, available amenities, and the necessary level of care.

• Basic care fees = $150/day
• Medication assistance = $200/month
• Bathing/dressing help = $75/day
• Incontinence care = $100/day
• Meals = $25/day
• Activities = $150/month
• Housekeeping = $30/day

However, costs can be higher in some areas or for those with more complex medical needs. Research different assisted living options to find the best care for your loved one at a price you can afford.

Adult child responsibility

As an adult child and caregiver, you have an immense responsibility in caring for an aging parent with assisted living needs. Though government programs and long-term insurance provide some support, the family primarily suffers from the practical, financial, and emotional burden. Taking time to thoroughly research options, visit communities in person, understand costs, and complete financial aid applications gives your loved one the best chance of thriving. 

Remember to stay current on new health concerns, changing social trends, and how your money situation evolves. These aspects help you remain informed and make beneficial decisions. You can serve as your loved one's trusted advocate in this vulnerable chapter with compassion and patience. Know that even small acts of tenderness from you as a caregiver mean the world.

Managing the financial burden of senior care

Caring for an aging loved one can be challenging as their health needs increase. Seek advice from tax experts to learn about medical expense deductions that can alleviate financial burdens. 

Use all available resources for the daily comfort, safety, and excellent care for your senior loved one.

You should have a plan to manage the increasing costs of senior care. As a family caregiver, exploring all financial resources available guarantees your loved one receives the best possible care during this important chapter in their life.