A Comprehensive Guide to Tax Deductions for Assisted Living

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Navigating the journey to assisted living can be filled with both emotional considerations and financial questions. While it’s a significant decision, understanding the financial aspects, such as potential tax deductions, can bring peace of mind and make the transition smoother.

Tax deductions can provide valuable financial relief, making assisted living a more attainable option for your family. This guide is here to help you understand these deductions and navigate the process with confidence, empowering you to make the best choices for you or your family member’s well-being.

Key Takeaways:

  • Tax deductions can significantly offset assisted living costs.
  • Eligibility depends on a “chronically ill” designation, requiring help with daily tasks or supervision due to cognitive impairment.
  • Deductions cover medical care, therapies, equipment, and transportation but not room and board.
  • Meticulous record-keeping and professional advice are key to maximizing tax benefits.

Understanding the “Chronically Ill” Requirement

The cornerstone of claiming tax deductions for assisted living expenses is establishing that you or your loved one is “chronically ill,” as defined by the Internal Revenue Service (IRS). This designation isn’t just a medical term; it’s a critical factor in determining eligibility for financial relief.

A person is considered chronically ill if they meet one of two criteria:

1.   They Need Help With Activities of Daily Living (ADLs)

They require assistance with at least two of the six essential ADLs: eating, bathing, dressing, toileting, transferring (moving from bed to chair, for example), and continence (controlling bladder and bowel functions).

2.   They Require Substantial Supervision Due to Cognitive Impairment

This includes individuals with conditions like Alzheimer’s or other forms of dementia that require substantial supervision to protect their health and safety.

Examples of ADLs that may require assistance include:

  • Difficulty getting in and out of the bathtub or shower
  • Needing help getting dressed or undressed
  • Inability to prepare meals or feed oneself
  • Struggling with using the toilet or managing incontinence

If you or a family member meets either of the criteria above, it’s vital to obtain a certification from a licensed healthcare practitioner. This certification should explicitly state they are chronically ill and require specific care services to address their condition. This document is a key piece of evidence when claiming tax deductions.

What Expenses Are Deductible? A Closer Look at Qualifying Costs

Once you’ve established that you or your loved one meets the criteria for being chronically ill, you can explore the wide range of medical expenses incurred at an assisted living community that may be tax deductible. These expenses include, but are not limited to:

  • Assistance with ADLs: The cost of assistance with daily tasks like bathing, dressing, and eating
  • Medication Management: Fees for administering and managing medications, including insulin injections or other specialized care
  • Therapies: Expenses for physical, occupational, or speech therapy, often essential for maintaining or improving functionality
  • Medical Equipment: The cost of medical devices like blood glucose monitors, walkers, hospital beds, oxygen concentrators, and hearing aids
  • Transportation to Medical Appointments: The cost of transportation to and from doctor visits, therapy sessions, and other medical appointments

Important Note About Limits

While these expenses are generally deductible, there may be limits on the amount you can deduct for specific types of expenses. For example, there may be a cap on the deductible amount for certain medical equipment. You can check IRS Publication 502 for current limits and further details.

How to Deduct Assisted Living Expenses: A Step-by-Step Guide

To claim these deductions, you’ll need to itemize your deductions on your tax return using Form 1040 and Schedule A. It’s crucial to obtain and maintain itemized bills from the assisted living community that clearly detail the services provided and their associated costs. Here’s how to get started:

1.   Gather Documentation

  • Obtain itemized bills from the assisted living community that clearly detail the types of services provided (e.g., assistance with ADLs, medication management, therapy) and their associated costs.
  • Collect receipts and invoices for all other eligible expenses, including doctor visits, prescription medications, medical equipment, and transportation to medical appointments.

2.   Organize and Store Records

  • Create a dedicated folder or system to store all your medical expense documents.
  • Keep the records organized by year for easy reference.
  • Consider scanning or making digital copies of your records for added security.

3.   File Your Tax Return

  • Choose to itemize your deductions instead of taking the standard deduction. This means using Form 1040 and Schedule A to report your eligible medical expenses.
  • Report your total medical expenses on Schedule A, including the eligible assisted living costs.
  • Remember that only the portion exceeding 7.5% of your adjusted gross income (AGI) is deductible.

4.   Keep Records for Future Reference

  • Retain all documentation for at least three years from the date you file your tax return, as the IRS may request verification of your deductions.
  • Consult a tax professional if you have any questions or need assistance with claiming these deductions. They can provide personalized guidance and ensure you’re maximizing your tax benefits.

Remember, thorough record-keeping is key to successfully claiming these deductions and ensuring you receive all the financial benefits available to you.

Claiming a Parent as a Dependent: Understanding the Implications

If you provide significant financial support to a parent residing in assisted living, you may be able to claim them as a dependent on your tax return. This can result in a higher standard deduction and potentially increase the amount of medical expenses you can deduct.

However, claiming a parent as a dependent can have other federal and state tax implications.

It’s strongly recommended to consult with a qualified tax professional, such as a certified public accountant (CPA) or an enrolled agent (EA). These professionals can provide personalized guidance based on your specific circumstances, ensuring you take full advantage of all available deductions and credits.

Calculating Your Deduction: The 7.5% AGI Threshold

The IRS allows you to deduct only the portion of your total qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI). This is an important threshold to understand, as it directly impacts the amount of your deduction.

Let’s say your AGI is $60,000. In this case, you can only deduct medical expenses exceeding $4,500 (7.5% of $60,000). If your total qualified medical expenses for the year are $7,000, you can deduct $2,500 ($7,000 – $4,500).

To ensure you accurately calculate your deduction and identify all eligible expenses, refer to IRS Publication 502, Medical and Dental Expenses. This comprehensive guide provides detailed information on qualifying expenses, the deduction calculation process, and any applicable limitations.

Additional Considerations: Exploring Other Financial Resources

While tax deductions are a valuable resource, it’s also wise to explore other avenues for financial assistance with assisted living costs.

Medicaid may be an option if you or your loved one meets certain income and asset requirements. Long-term care insurance can also help cover these costs if you have a policy in place. In some cases, life insurance policies with accelerated death benefit riders can be utilized to pay for assisted living care.

Your Path Forward: Empower Your Financial Decisions

Understanding the tax deductions available for assisted living empowers you to make informed choices about your or your family member’s care. Meticulous record-keeping and seeking professional tax advice can significantly reduce your financial burden. 

By maximizing these benefits, you can focus on what truly matters: ensuring your you or a loved one receives the best possible care in a comfortable and supportive environment.

Explore the Possibilities at Cascade Living Group Community

At Cascade Living Group, we understand that choosing the right assisted living option can be a big decision. That’s why our transparent pricing includes everything you need for a comfortable and fulfilling life: rent, utilities, delicious cuisine, housekeeping, laundry, activities, transportation, and more. 

Curious to see how our communities compare to your current living situation? Find a community near you or download our easy cost comparison sheet to discover the surprising value and affordability of senior living with Cascade Living Group.