Can You Claim A Tax Deduction for Assisted Living?

The Arbors Blog
Posted by The Arbors on Jan 12, 2017 2:00:00 PM

arbors-tax-deductions.jpgIf your parent needs help with activities of daily living (ADLs), you have few options. One of the best is Assisted Living.

Assisted Living offers trained, caring help with ADLs, such as getting dressed or remembering to take medications. If your parent has Alzheimer’s or another form of dementia, Assisted Living offers a safe environment.

Can You Afford Assisted Living?

The average cost for a private one-bedroom apartment in an Assisted Living community is over $3,000 per month, according to research by the Argentum, the nation’s largest Assisted Living organization. This amount, Argentum states, is frequently less than the costs of home health or nursing home care.

Costs can vary widely. Most Assisted Living communities use a tiered pricing model that provides a base level of service, then charge additional fees for more services. A resident needing little care would use the basic plan—in many cases, an hour a day. Residents are evaluated on a regular basis to determine if they require additional services.

Because residents receive individualized care, most Assisted Living communities can’t provide even a ballpark price.

Can You Claim A Tax Deduction for Assisted Living? 

The federal government has recognized the financial burden of many families with a loved one in care by offering a tax deduction that can help Assisted Living residents. Using this tax deduction can save you or your parent money on the cost of medical and care expenses that make up part of the cost of Assisted Living.

Medical expenses and some long-term care expenses are deductible if the expenses are more than 10 percent of your adjusted gross income.

To deduct these expenses, your loved one must meet the following criteria:

  1. A doctor or nurse must certify that the resident is chronically ill. A person is considered chronically ill if they are unable to perform a minimum of 2 ADLs, such as bathing, continence or dressing, or if they need supervision because of dementia or another cognitive impairment for 90 days.
  2. A plan of care must be prescribed by a doctor, nurse or social worker. Most Assisted Living communities develop a plan of care using a needs assessment, medical evaluation, and input from the resident and caregiver.

However, even if your parent does not meet the definition of chronically ill, they may still deduct medical expenses, which may include entrance fees. Assisted Living communities are fully aware of these deductions and will provide information to help you deduct these expenses.

Who Claims The Deduction?

If your family member lives in the U.S., Canada or Mexico and is legally considered a dependent, you can take this deduction. If you contribute more than 10% in support as part of a “multiple support agreement” that pays more than 50% of the Assisted Living resident’s support, you may still be eligible for the deduction.

Otherwise, the resident may take the deduction for the medical expenses included in their fees for Assisted Living.

What Medical Expenses Can Be Deducted?

If you itemize, medical expenses that can be deducted include:

  • prescription drugs and insulin
  • dental treatment, including x-rays, fillings, and dentures
  • travel to medical appointments
  • after-tax premium payments for insurance policies that cover medical care, such as Medicare Part B premiums
  • Assisted Living entrance or initiation fees directly related to medical care, such as assessment and care plan development fees
  • nursing services even if the person performing the service is not a nurse.
  • long-term care, including housing, food, and other personal costs, if you are chronically ill
  • meals and lodging at a hospital or similar institution if the principal reason for being there is to receive medical care and as long as it costs $50 or less each night for each person
  • medical equipment installed in a house or improvements made to the home if needed to for medical care. If the improvements result in an increase in property value, decrease the deduction by that amount.
  • in-home care items, such as disposable briefs and special foods

Some states provide tax deductions Assisted Living residents can use. For example, in Massachusetts, residents who are 65 or older before January 1, 2017, may be eligible to claim a refundable Senior “Circuit Breaker” tax credit of a maximum $1,070 for the rent paid on their principal residence.

Residents 65 and older also may claim a maximum $3,000 deduction for rent paid for a principal place of residence.

Other Options to Cover The Cost of Assisted Living

Most Assisted Living communities provide information on ways to save residents money. Some of the most common include:

  • Long-term care insurance
  • Low-Income Housing Tax Credit
  • HOME Investment Partnerships Program
  • Medicaid
  • Veterans programs

Many states also offer programs to help residents. For example, in Massachusetts, MassHealth’s Program of All-Inclusive Care for the Elderly (PACE), Personal Care Attendant (PCA), and Group Adult Foster Care (GAFC) programs may help with funding.

Some communities also offer opportunities for residents to share apartments to cut costs.

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Topics: Financial Resources