Is Memory Care Tax Deductible
If your loved one is receiving memory care for Alzheimers or dementia, part or all of the cost of their care may qualify for a medical expense tax deduction. Memory care falls under the category of long-term care services, which are deductible expenses under the 1996 Health Insurance Portability and Accountability Act .
The cost of memory care should be added to a sum total of all of an individuals qualifying medical expenses. The portion of this total that can be deducted from taxes is that which makes up over 7.5% of their adjusted gross income.
What Are Qualified Long
Qualified long-term care services have been defined as including the type of daily personal care services provided to Assisted Living residents, such as help with bathing, dressing, continence care, eating and transferring, as well as maintenance services, such as meal preparation and household cleaning.
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.
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What Are Some Deductible Expenses
Assisted Living Tax Preparation Resources
The following resources can provide more detailed assisted living tax preparation information:
- IRS Publication 502: Medical and Dental Expenses has a complete list of allowable expenses.
- IRS Publication 501: Exemptions, Standard Deductions and Filing Information to learn more about claiming the person with dementia as a dependent.
- Alzheimers Association: Detailed overview of tax deductions and credits that are available for out-of-pocket medical expenses paid by families caring for a loved one with Alzheimers at home.
- Assisted Living Federation of America: Detailed information about costs of assisted living.
- IRS.gov: Detailed overview of tax information for unique family situations.
If you are looking for additional tax tips, dont forget to read our article on Senior Tax Credit.
Do you have tax tips for families looking for additional credits and deductions? Share them with us in the comments below.
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Impact Increases With Age
These deductions are typically not useful for people in their fifties or sixties. But Slome says the deductions can be valuable for people in their seventies and older.
Why? For one thing, income tends to drop in retirement, so the deductions can have a greater overall impact on tax liability. As you age, youre also more likely to have medical expenses exceeding 7.5% of AGIIRS data shows two-thirds of all medical-expense deductions are claimed by seniors. Those deductions could push your total itemized deductions past the standard deduction amount. The chances of satisfying the medical necessity requirements for the care costs deduction also increase with age, and the cap for the premiums deduction levels off after age 70.
Scenarios For Using This Credit
Medical and dental expenses are deductible in each of the following four tax filing scenarios for those born prior to January 2, 1951. For those born after this date, 7.5% needs to be replaced with 10%.
1) When the care recipient is filing his/her own taxes and their personal annual medical and dental expenses exceed 7.5% of their adjusted gross income.
2) When a married couple is filing jointly and their combined medical and dental expenses exceed 7.5% of their combined adjusted gross income.
3) When a married couple is filing separately. Since the deduction is based on expenses as a percentage of income, splitting income between two individuals and filing separately may yield a greater overall tax reduction.
4) When a family member or caregiver is claiming the care recipient as a dependent, they can combine that individuals medical and dental expenses with his or her own expenses. If the combined expenses exceed 7.5% of their combined adjusted gross income, they can claim the expenses as a deduction.
Any of these scenarios may result in invalidating other deductions. It is recommended to prepare taxes considering all alternatives to determine which approach is most beneficial to the taxpayer and family unit on the whole.
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Tax Deductions For Assisted Living Costs
If you or a family member lives in an assisted living facility, you know that assisted living costs continue to rise every year. But did you know some of those costs may be tax deductible? Medical expenses, including some long-term care expenses, are deductible if the expenses are more than 7.5 percent of your adjusted gross income.
In order for assisted living expenses to be tax deductible, the resident must be considered “chronically ill.” This means a doctor or nurse has certified that the resident either:
- cannot perform at least two activities of daily living, such as eating, toileting, transferring, bath, dressing, or continence or
- requires supervision due to a cognitive impairment .
In addition, to qualify for the deduction, personal care services must be provided according to a plan of care prescribed by a licensed health care provider. This means a doctor, nurse, or social worker must prepare a plan that outlines the specific daily services the resident will receive. Though not required by law, most assisted living facilities prepare care plans for their residents.
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Residents who are not chronically ill may still deduct the portion of their expenses that are attributable to medical care, including entrance or initiation fees. The assisted living facility is responsible for providing residents with information as to what portion of fees is attributable to medical costs.
The Irs Allows Some Limited Tax Breaks On Medical Expenses And Insurance Premiums Related To Long
The staggering costs of long-term care can wreak havoc on your retirement savings. According to the U.S. Department of Health and Human Services, about 27% of Americans turning 65 this year will incur at least $100,000 in long-term-care costs, while nearly 18% will require care costing more than $250,000. Thats a hard pill for most seniors to swallow.
But if you require long-term care, you may be able to deduct a portion of the costs on your tax return. If you purchased a long-term-care insurance policy to cover the costs, you may be able to deduct a portion of your premium payments, too. Since retirement planning includes long-term care, its important to understand how these tax deductions can help offset overall costs.
Long-term-care costs. You can deduct unreimbursed costs for long-term care as a medical expense if certain requirements are met. This includes eligible expenses for in-home, assisted living and nursing-home services.
First, the long-term care must be medically necessary. It may include preventive, therapeutic, treating, rehabilitative, personal care or other services. The cost of meals and lodging at an assisted-living facility or nursing home is included if the main reason for being there is to get qualified medical care.
An adult child can claim a medical expense deduction on his own tax return for the cost of a parents care if he can claim the parent as a dependent.
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Q: Can I Claim Tax Relief On Home Health Care Costs
Yes. Seniors who medically require home health care may deduct all related expenses in excess of 10% of gross income from their taxes. If the senior lives with a family member and is considered a dependent for tax purposes, the family member may deduct the home health care expenses from their income taxes.
However, if the senior is not chronically ill or some aspects of home health care are not medically necessary , then only the medical costs of home health care are tax deductible.
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 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 , such as bathing, dressing or eating
- The resident must require supervision because of cognitive impairment, including but not limited to Alzheimers disease or dementia
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Tax Credits And Deductions For Caregivers
Not every family member is capable of caring for their loved one with a chronic condition, whether its because they have to work, they live too far away, or any other reason. Oftentimes, that means they need to hire someone to manage that persons medical care. If this is the case, a caregiver might qualify for the Child and Dependent Care credit on their federal tax return which can allow them to deduct up to 35% of dependent care expenses paid to your medical care provider.
The eligibility requirements are as follows:
- The caregiver must live with the person they are claiming as a dependent for more than six months.
- The caregiver must file as single, head of household, married filing jointly, or as a qualifying widow with a dependent child.
- The caregiver must have earned some form of taxable income.
Note that hiring someone for long term care services may make you that persons employer, and this would obligate you to withhold a Medicare tax, Social Security tax, and federal unemployment tax.
Different states have their own credits that build on top of this federal credit, so be sure to look into what might be available in your area.
If it is not necessary to hire someone to provide long term care, the following items may be deductible:
The Assisted Living Tax Deduction
Diligent record keeping throughout the year, even for related expenses like mileage from doctor visits, can add up to a lot of write-offs come tax time. If you want to help ease the financial burden, you need to learn what you can and cant deduct as well as keep excellent records and hold onto receipts. This diligent record-keeping youll be well prepared to qualify for write-offs.
Its important to note that the taxpayer must be entitled to itemize deductions. However, other requirements differ depending on whether the taxpayer is the senior or the caregiver.
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How To Save Money When Hiring A Senior Caregiver To Provide Private Duty Care For A Loved One
Hiring an in-home senior caregiver can be costly. The good news: There are tax breaks that can help offset your care costs.
To determine which tax breaks you may qualify for, you first need to determine who the employer is. . In most cases, the employer of a senior caregiver is the person receiving care or their spouse. However, its also possible for an adult relative to be considered the employer especially if the elderly person is living in their home.
Lets take a look at the tax breaks associated with each employment scenario.
Requirements For Memory Care To Be Tax Deductible
A person must meet the following requirements for their memory care expenses to be tax deductible:
- They must be considered chronically ill. This is defined as meeting one of the following qualifications:
- They are unable to perform at least two activities of daily living on their own. The six activities of daily living are eating, dressing, bathing, transferring, toileting, and continence.
- They require substantial supervision due to a cognitive impairment such as Alzheimers or another form of dementia.
- Their care must be provided by a licensed medical professional, under a specified plan of care. Care plans are written outlines of the daily services an individual receives, and they often include assistance with the activities of daily living. For Alzheimers and dementia patients, care plans may be administered by an in-home memory care provider or at a memory care community.
If someone receives care for Alzheimers or dementia, it is highly likely that they meet the above requirements. However, it is important to contact both a tax advisor and their care provider to confirm that this is the case.
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Individual Vs Group Insurance
An individual long-term care insurance policy is a contract between you and the insurer. These policies must be approved by the California Department of Insurance and have all of the consumer protections required under California law. Individual policies are guaranteed renewable and cannot be canceled by the insurance company unless the premium is not paid on time. However, every company has the right to increase the premiums it charges with proper notification and approval from the Department of Insurance.
Group long-term care insurance is a contract between an insurer and a group such as an employer on behalf of its employees or a trade or professional association on behalf of its members. If you are covered under a group plan, you receive a certificate rather than a policy of insurance. Also, many of the policy terms have already been negotiated by the group, and the group has the option to terminate the policy at any time. Often, but not always, group insurance is less expensive than individual insurance. If group coverage is terminated, you have the right to continue the coverage or buy a conversion policy depending on the provisions of the policy and other factors. If you purchase group coverage, ask about what options will be available to you if the group cancels the policy or if you lose your membership or eligibility.
Be sure to ask if the premiums will change and ask how you will be notified.
Requirements For Tax Deductible Status
An individual must meet the following requirements for their memory care costs to be considered tax-deductible:
If someone has Alzheimers or dementia and is receiving care, the likelihood is that they qualify according to these listed requirements. However, it is vital to consult with their tax professional and care provider to confirm their eligibility.
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Medical Costs Related To Alzheimers Care That You May Be Able To Deduct On Your Tax Return:
An individual with dementia incapable of caring for his or herself may be considered a dependent for tax purposes, and you may be allowed to itemize medical costs which have not been reimbursed by insurance.
The list of allowable itemized expenses includes:
- Medical fees from doctors, hospitals, laboratories
- The list of allowed medical fees can cover personal care services, food and lodging at an assisted living community. A licensed healthcare professional has to certify in writing that the assisted living resident has a severe cognitive impairment, such as Alzheimers disease, dementia or other form of irreversible loss of mental capacity that requires substantial supervision to be protected from threats to their health and safety
- Home health care and visiting nurse agency fees related to medical care
- Prescription drugs costs
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Deductible Assisted Living Facility Costs
To return to Moms and Dads situation above, they have $48,600 of medical expenses . If Dad figures adjusted gross income of, say, $90,000, then he can deduct the expenses over 10% of $90,000 .
The deduction of $39,600 should help out a great deal!
Note: This article is a heavily edited version of an article I originally posted/updated in 2012, 2015, 2019, and 2020. It is still an interesting and timely topic around tax time. I left some of the older, original comments below because they continue to be relevant.
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Can You Take A Tax Deduction For Assisted Living Costs
Mom is in an assisted living facility. Mom and Dad both receive Social Security . Dad receives a federal retirement system pension of $35,000.
Because the assisted living facility costs about $3,800 monthly and they have other unreimbursed medical expenses of $3,000, Dad has liquidated half of a $100,000 IRA and plans to liquidate the other half next year . Unless Dad can figure out some tax deductions, Moms and Dads taxes are going to hurt.
He just might be in luck, however. Depending upon Moms condition the assisted living facility costs might be tax deductible.