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If you or a loved one is struggling with things like preparing your own meals or getting dressed independently, you might be considering assisted living. Assisted living is a form of residential care for seniors and/or individuals with disabilities that offers assistance with day-to-day tasks, as well as amenities like fitness centers, salons and social activities. Cost is often a major consideration for those entering assisted living, so it can also be helpful to know if assisted living expenses are tax deductible.
Room and board generally are not tax deductible, but other costs associated with assisted living may be. “[It] depends on a few factors, including the nature of the care provided, the individual’s health condition and their financial situation,” says Oliver Morrisey, an estate attorney with Empower Wills & Estate Lawyers.
So, how can you know for sure which expenses are and are not tax deductible? Here, experts cover the ins and outs of assisted living tax deductions.
Key takeaways
- Some medical expenses accrued while you’re in assisted living are tax deductible, but they need to meet specific IRS criteria.
- Documentation needed to deduct medical expenses may include doctor-prescribed care plans and itemized statements from your assisted living community.
- Adult children paying for assisted living for their parents may also be eligible for tax deductions if they can claim their parent as a dependent or medical expenses exceed 7.5% of adjusted gross income.
How is assisted living tax deductible?
There are two main guidelines when it comes to deducting assisted living-related medical expenses from your federal taxes, says Allison A. Alexander, a financial advisor at Savant Wealth Management:
- Only total medical expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible on Schedule A of your tax return.
- If the sum of all itemized deductions on Schedule A is less than the standard deduction, it’s best to use the standard deduction when computing taxable income.
Additionally, she adds, if you, your spouse or a dependent is in an assisted living care facility primarily for medical care (such as assistance with Alzheimer’s or another condition that bars them from many activities of daily living), then out-of-pocket assisted living costs for lodging, meals and assistance with bathing and/or getting dressed, can potentially also be deducted as a medical expense. It’s important to check with a qualified tax professional or financial advisor to be sure.
What about state taxes? Alexander says these are state-specific. “Some states mirror the federal rules, a few states include a threshold [for medical deductions] other than 7.5%, and some don’t allow any deductions at all for medical expenses,” she says. “It’s important to consult your state’s department of revenue for guidance.”
Which assisted living expenses are tax deductible?
According to the experts we spoke to, the following expenses are usually eligible for a medical tax deduction:
- Medication.
- Physical therapy.
- Occupational therapy.
- X-rays.
- Wheelchairs.
- Transportation to and from appointments and procedures.
- Assistance with activities of daily living (ADLs).
Room and board are generally not tax deductible; however, in certain special cases where the individual is receiving the bulk of their medical care from the assisted living facility, it may be possible. Speak with your tax preparer to find out more if this is your (or your parent’s) situation.
“…itemized statements from the facility are important. These statements clearly separate medical services from non-medical charges, making it possible to identify the portion of the cost that may qualify for a [medical] deduction.”
— Oliver Morrisey, estate attorney
How to deduct assisted living expenses
While you might be inclined to simply rely on payment receipts to put together your tax deductions, Morrisey says the IRS will need more than that to verify that an expense qualifies as a medical deduction.
Request itemized billing statements
“Many facilities bundle medical care with general living expenses like meals and housing, so without a detailed breakdown, there’s no way to confirm which part of the bill is deductible,” says Morrisey. “This is why itemized statements from the facility are important. These statements clearly separate medical services from non-medical charges, making it possible to identify the portion of the cost that may qualify for a [medical] deduction.”
Gather bank records and statements of medical necessity
Along with itemized statements, Morrisey says you’ll want to keep proof of your payments via bank records and credit card statements. “This creates a paper trail that links your payments directly to the medical services listed by the facility,” he explains.
Additionally, for any service that might be questioned, you’re going to want documentation from a doctor explaining why it’s medically necessary, such as a patient-centered care plan.
Ask providers for year-to-date expense summaries
Consider having both digital and hard copies of all your paperwork, and keep them organized for easy access. If you need further documentation, Alexander says the assisted living facility should be able to provide a full year-to-date summary of all expenses charged and paid. “Pharmacies will also provide a year-to-date list, if asked,” she adds.
Can a senior’s child claim assisted living tax deductions?
“If you’re paying for a family member’s assisted living care, tax relief might be available if the person receiving care qualifies as a dependent,” says Morrisey. “Specifically, if the individual requires full-time medical care due to a medical condition, and they meet the criteria for being a dependent, you may be able to deduct some of the expenses related to their care.”
In order to claim a parent as a dependent, the parent:
- Must not file taxes.
- Must be a U.S. resident.
- Must have an annual income of less than $5,050 gross.
- Must receive more than half of their support from you.
“The IRS allows you to deduct qualified medical expenses you pay for another individual, including parents, as long as those expenses meet specific criteria for medical care under IRS guidelines.”
— Oliver Morrisey
What if you can’t claim your parent as a dependent?
So, what happens if you’re supporting a parent but can’t claim them as a dependent? While you can’t take the full dependent exemption in this scenario, Morissey says you may still be able to deduct qualifying medical expenses you paid on their behalf, so long as they exceed 7.5% of your adjusted gross income.
“The IRS allows you to deduct qualified medical expenses you pay for another individual, including parents, as long as those expenses meet specific criteria for medical care under IRS guidelines,” says Morrisey. For example, “let’s say your AGI is $100,000, and you paid $15,000 in eligible medical costs for your parents’ care. You could deduct $7,500, after accounting for the $7,500 threshold.”
Additionally, Morrisey says if you have siblings all sharing these expenses, each person can claim a tax deduction, but only for the portion of the parent’s medical expenses that they paid.
A final tip to simplify assisted living tax deductions
Working with an experienced tax professional can help you get prepared for the cost of aging even before you or your loved one enter into assisted living.
While it can be intimidating to know where to begin with tax deductions for assisted living expenses, it can save you a lot of money once you understand the rules and prepare ahead of time. After all, paying for long-term care can get expensive, and using tax deductions can help ensure you’re able to obtain the best possible care for yourself or your loved one.
