According to the National Center for Assisted Living (NCAL), the average cost of assisted living in the United States is $48,000 per year. Considering only 16.5% of assisted living residents are covered by Medicaid benefits, the vast majority of seniors in assisted living rely on some form of private pay to cover the cost of care.
As the cost of assisted living care continues to rise each year, seniors and their families are facing a massive financial obligation that shows no sign of abating.
To alleviate the financial burden of paying for long term care, the IRS allows assisted living residents and their spouses to deduct the cost of care from their income taxes. When a family member pays for a senior’s long term care and the senior qualifies as the benefactor’s dependent for tax purposes, the family member may even deduct assisted living costs from their income taxes.
Following is a brief overview of how to deduct the cost of assisted living from your annual income taxes, followed by a discussion of some frequently asked questions regarding tax deductions for long term care.
How to Deduct Qualifying Medical Expenses
IRS Topic 502 allows a head of household to deduct qualifying medical expenses for themselves, their spouse, and their dependents. According to the IRS, “medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.”
That said, you’re only allowed to deduct qualifying medical expenses in excess of 7.5% of your gross income. To determine your deduction, you’ll need to calculate your annual medical expenses and then subtract 7.5% of your annual income.
Note that deducting medical expenses is only an option if you elect to use itemized deductions for your income tax return. It only makes sense to do this if your itemized deductions amount to more than the standard deduction, so you should consult with a tax professional before making such an election.
How to Deduct Non-Medical Expenses for Assisted Living
While skilled nursing care easily qualifies as a medical expense, deducting assisted living costs comes with a few caveats.
In order to deduct the entire cost of assisted living, the senior must be considered chronically ill. This requires certification by a doctor or nurse based on one of two factors:
- The senior cannot perform at least two daily living activities, such as eating, bathing, dressing, grooming, toileting, or transferring.
- The senior requires supervision due to a cognitive impairment such as Alzheimer’s disease or dementia.
Additionally, the resident’s personal care services must be provided in accordance with a care plan prescribed by a licensed health care provider. That means a doctor, nurse, or social worker must prepare a plan outlining specific daily services — which most assisted living facilities automatically prepare for all residents.
As long as these conditions are met, all of the costs of assisted living — including non-medical costs like housing, meals, and social activities — are considered medical expenses for tax deduction purposes.
However, if the senior isn’t chronically ill and their residence in an assisted living community is more for convenience or personal reasons, then only the medical costs associated with assisted living are tax deductible.
Tax deductions for Family Members of Assisted Living Residents
The spouse of an assisted living resident is naturally eligible to deduct qualifying assisted living costs from their income tax return as long as they file as “married filing jointly.”
When a family member pays for a senior’s assisted living costs, the family member may only deduct qualifying costs if the senior is a dependent for tax purposes. The IRS imposes strict requirements for claiming an elderly parent as a dependent, including an income limitation and support requirement.
For more information on claiming an elderly parent as a dependent for tax purposes and deducting their medical expenses from your income taxes, consult with a tax specialist to discuss your unique situation.
FAQs about tax deductions for long term care
Q: Can you write off assisted living on your taxes?
Yes, medical expenses in excess of 10% of gross annual income may be deducted from your income taxes. Assisted living expenses qualify as deductible medical expenses when the resident is chronically ill and care is provided according to an established plan prescribed by a licensed healthcare provider.
Q: What portion of assisted living is tax deductible?
As long as the resident meets the IRS qualifications (see above), all assisted living expenses — including non-medical costs like housing and meals — are tax deductible. Simply add up the annual cost of assisted living, subtract 10% of your gross income, and the remaining balance is completely tax deductible.
When a senior resides in an assisted living for personal reasons and is not considered chronically ill, only the medical costs associated with assisted living are tax deductible.
Q: Can nursing home costs be deducted from income tax?
Yes. In fact, the same rules apply as with deducting assisted living costs from your income taxes — namely, the patient is chronically ill and treatment/care is prescribed by a licensed healthcare provider.
Q: Are health insurance premiums tax deductible in Arizona?
If you elect to submit itemized deductions rather than the standard income tax deduction, all medical costs in excess of 10% of your gross income are tax deductible. That includes health insurance premiums, prescription medication, medical bills, and physician-prescribed rehabilitation.
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 (i.e. they’re for convenience or personal reasons), then only the medical costs of home health care are tax deductible.