Tax Deductions and Assisted Living

May 4, 2021

Tax season is in full swing. Normally, Tax Day is April 15, but due to the coronavirus pandemic, the date has been pushed back to May 17, 2021. Figuring out what deductions individuals residing in assisted living facilities qualify for can be confusing. To help, the IRS has broken residents into two groups:

  1. Individuals, which include you, your spouse, or a dependent, in a nursing facility primarily for medical care.
  2. Individuals who live in assisted living but are there primarily for non-medical reasons.

The deductions these two groups receive differ. For group A, the IRS says the entire cost of their stay is tax-deductible. This includes meals and lodging. When it comes to group B, this is not the case. For those individuals, the cost of their medical care is tax-deductible, but the costs of their room and food are not. One thing that is the same for both groups, however, according to the IRS, is “the total of all allowable medical expenses must be reduced by 7.5 percent of your adjusted gross income.”, which was founded by elder law attorney Harry S. Margolis, put things into easier-to-understand terms. They explained that for assisted living expenses to be considered tax-deductible, the individual has to be certified as chronically ill, which can be defined in one of two ways.

  1. The individual cannot perform at least two daily activities like eating, bathing, using the restroom, transferring from bed to wheelchair, or changing clothes without assistance.
  2. The individual needs supervision because of cognitive impairment due to Alzheimer’s disease or another form of dementia.

The source added that to receive these deductions, a care plan prescribed by a licensed healthcare professional detailing personal care services must be in place for the individual. If you or your family member is not considered chronically ill, our teams at our facilities can help you figure out what part of your bill can be considered as medical costs.

When claiming a loved one in an assisted living facility as a dependent, the IRS says to reference Publication 502 which provides information about medical and dental expenses. This document goes into detail about exactly what expenses and whose expenses can be included when you are figuring out your tax deductions. The IRS gave three qualifiers to determine if you can count your loved one as a dependent.

  1. The loved one must fall into one of these categories:
    1. Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild),
    2. Brother, sister, half brother, half sister, or a son or daughter of any of them,
    3. Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle)
    4. Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
    5. Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship didn’t violate local law
  2. They have to be “U.S. citizens or nationals or a resident of the United States, Canada, or Mexico.”
  3. You provided more than half of their support for the year. (Source)

If you shared your loved one’s expenses with others, then you should abide by a Multiple Support Agreement. The IRS defines this as “when two or more people provide more than half of a person’s support, but no one alone provides more than half.” A tax professional can help you determine what part of their support you can receive a deduction for.

There are many questions you may ask yourself when trying to decide what constitutes a medical expense when it comes to assisted living. Tax professionals can help answer any additional questions you may have as you navigate the world of taxes.