Are there Tax Deductions for Senior Living Expenses?

Mar 16, Alissa Sauer

Every year, as tax season approaches, taxpayers seek to optimize their deductions, minimize their expenses, and either boost their returns or trim their tax payments. For those involved in senior living, certain expenses, such as medical and assisted living costs, can be tax-deductible within specific parameters. However, it’s crucial to recognize that every financial situation is unique, and consulting a tax advisor is advisable to identify applicable deductions.

Here, we outline general guidelines for claiming caregiver and assisted living tax deductions.

Tax Deductions for Medical Expenses

The IRS allows taxpayers to deduct a wide range of medical expenses, providing opportunities to alleviate financial burdens associated with healthcare costs. Here’s a deeper look into what can be deducted and how:

Insurance Premiums

Taxpayers can deduct insurance premiums paid for medical or long-term care insurance, provided they cover or partially cover qualified long-term care costs. The deductible for long-term care premiums varies based on age, allowing individuals to benefit from planning for their future healthcare needs.

Out-of-Pocket Medical Expenses

In addition to insurance premiums, out-of-pocket medical expenses not reimbursed by insurance are also deductible. These expenses encompass a broad spectrum of healthcare services and treatments, including preventive care, surgeries, treatments, dental care, and vision care. This provision extends to expenses incurred by dependents as well.

Eligibility Criteria

To claim medical expenses as deductions, taxpayers must be eligible to itemize deductions on Form 1040, Schedule A. This means opting for itemized deductions instead of taking the standard deduction. It’s essential to evaluate whether itemizing deductions yields greater benefits than opting for the standard deduction.

Threshold for Deductibility

Medical expenses are only deductible if they exceed a certain percentage of adjusted gross income (AGI). For individuals 65 or older, medical expenses must exceed 7.5 percent of their AGI to qualify for deduction. However, for taxpayers under 65, the threshold is 10 percent of their AGI. This threshold ensures that deductions are primarily directed towards significant healthcare expenses, providing relief for those facing substantial medical costs.

Exclusions

While many medical expenses are deductible, certain expenses are excluded from eligibility. Expenses such as over-the-counter medications, gym memberships, or cosmetic surgeries do not qualify for deductions. It’s essential to understand these exclusions to accurately assess deductible medical expenses.

Tax Deductions for Assisted Living Expenses

Under the Health Insurance Portability and Accountability Act (HIPAA) of 1996, individuals receiving qualified long-term care services may be eligible to claim tax deductions, providing relief for the financial burdens associated with assisted living expenses. Here’s a comprehensive breakdown of the eligibility criteria and qualifying expenses:

Qualified Long-Term Care Services

To qualify for tax deductions, individuals must receive qualified long-term care services, which encompass a range of assistance tailored to meet the individual’s healthcare needs. These services must be essential for daily living and include assistance with activities of daily living (ADLs) such as bathing, dressing, toileting, transferring, and eating. Additionally, services related to medication management, mobility assistance, meal preparation, and household cleaning may also be considered eligible expenses.

Certification of Chronic Illness

Assisted living residents can only claim deductions for qualified long-term care services if certified as chronically ill by a licensed healthcare provider. Chronic illness is typically defined as the inability to perform at least two ADLs without substantial assistance for an extended period or the incapacity to protect against health and safety threats due to severe cognitive impairment. The certification process ensures that deductions are directed towards individuals with significant healthcare needs, providing financial support where it’s most needed.

Prescribed Care Plan

To qualify for tax deductions, care services must adhere to a prescribed plan developed by a licensed healthcare provider. This plan outlines the specific care requirements based on the individual’s chronic condition and healthcare needs. It details the frequency and type of assistance needed for ADLs, medical management, and any other essential aspects of care. The prescribed plan ensures that deductions are directed towards services that contribute to the individual’s health and well-being.

Assistance from Healthcare Professionals

Many assisted living communities employ licensed nurses or social workers who play a crucial role in developing and implementing prescribed care plans. These professionals assess the individual’s healthcare needs, coordinate care services, and ensure compliance with regulatory standards. Their expertise helps ensure that the care provided meets the criteria for tax deductions and contributes to the individual’s overall health and quality of life.

Documentation and Itemization

To claim deductions for assisted living expenses, taxpayers must maintain detailed records of all qualified long-term care services received and expenses incurred. This documentation is essential for accurately itemizing deductions on tax returns and providing evidence of eligibility in the event of an IRS audit. It’s crucial to retain invoices, receipts, and other relevant documents to support deduction claims and ensure compliance with IRS regulations.

Tax Deductions for Caregivers

For family caregivers shouldering the responsibility of paying for a senior loved one’s medical expenses out-of-pocket, there are potential tax breaks available to help alleviate the financial strain. Here’s a detailed overview of the eligibility criteria and how caregivers can leverage these deductions:

Dependent Status

To qualify for tax breaks, caregivers must first claim the senior loved one as a dependent on their tax return. This status signifies that the caregiver provides significant financial support to the senior and is responsible for their well-being. Claiming the senior as a dependent acknowledges the caregiver’s role in providing essential care and support.

Covering Living Expenses

In addition to claiming the senior as a dependent, caregivers must cover at least 50% of their living expenses. This requirement underscores the caregiver’s financial responsibility for the senior’s day-to-day needs, including housing, food, clothing, and healthcare. By meeting this criterion, caregivers demonstrate their substantial contribution to the senior’s financial support.

Deductible Medical Expenses

Caregivers meeting the criteria of claiming the senior as a dependent and covering at least 50 percent of their living expenses can deduct medical expenses exceeding a certain percentage of their adjusted gross income (AGI). This deduction provides relief for caregivers facing significant healthcare costs associated with caring for a senior loved one. It acknowledges the financial sacrifices caregivers make to ensure the senior’s health and well-being.

Threshold for Deductibility

Similar to the threshold for individuals claiming medical expenses for themselves, caregivers can deduct medical expenses exceeding a certain percentage of their AGI. This threshold ensures that deductions are primarily directed towards substantial healthcare expenses, providing relief for caregivers facing significant financial burdens. Caregivers should keep detailed records of all medical expenses incurred to support deduction claims accurately.

Documenting Expenses

Caregivers must maintain thorough documentation of all medical expenses incurred on behalf of the senior loved one. This documentation includes invoices, receipts, and statements that provide evidence of the expenses and their eligibility for deduction. Keeping organized records is essential for accurately reporting deductions on tax returns and complying with IRS regulations.

Taking Deductions for Senior Care

Leveraging these deductions can significantly alleviate financial burdens associated with healthcare costs for both individuals and families. However, navigating the intricate tax code necessitates careful consideration and often the expertise of a tax advisor to ensure compliance and maximize savings. By adhering to the outlined guidelines and maintaining thorough documentation, taxpayers can effectively leverage available tax breaks to mitigate the financial strain of healthcare expenses.

Consulting a tax advisor is recommended for personalized tax guidance and to explore deductions further. Additionally, our communities specialize in all aspects of senior living, including financial planning and benefits assistance. Reach out to one of our communities today to discuss the comprehensive benefits of transitioning to senior living.