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Over one million seniors live in Assisted Living communities across the United States and many of them pay their monthly fees with their own financial resources. Some or all of their costs may be tax deductible.
According to LarsonAllen, a national accounting and consulting firm, these are the basic rules concerning the tax deductibility of assisted living expenses:
- According to the 1996 Health Insurance Portability and Accountability Act (HIPAA), “long-term care services” may be tax deductible as an unreimbursed medical expense on Schedule A.
- Qualified long-term care services have been defined as including the type of daily “personal care services” provided to Assisted Living residents, such as help with bathing, dressing, continence care, eating and transferring, as well as “maintenance services”, such as meal preparation and household cleaning.
- Assisted Living residents seeking tax deductions for their services must qualify as “chronically ill”. This definition refers to seniors who are unable to perform two or more “Activities of Daily Living” (eating, transferring, bathing, dressing and continence) without assistance, or who need constant supervision because of a “severe cognitive impairment” such as Alzheimer’s disease or related dementias. The Assisted Living resident must have been certified within the previous 12 months as “chronically ill” by a licensed health care practitioner.
- In order to qualify for a deduction, personal care services must be provided pursuant to a plan of care prescribed by a licensed health care practitioner. Many Assisted Living communities have on staff a licensed nurse or social worker who prepares a plan of care, sometimes called a “Wellness Care Plan,” in conjunction with the resident’s physician which outlines the specific daily services the resident will receive in the community.
- In order to take advantage of deductions, a taxpayer must be entitled to itemize his or her deductions. Additionally, long-term care services and other unreimbursed medical expenses must exceed 7.5% of the taxpayer’s adjusted gross income. (Generally, a taxpayer can deduct the medical care expenses of his or her parent if the taxpayer provides more than 50% of the parent’s support costs.)
- For some Assisted Living residents, the entire monthly rental fee might be deductible, while for others, just the specific personal care services would qualify for a deduction.
Assisted living residents and their adult children should speak with their own income tax advisors to get clarification about their personal situation.
Details are also available in two IRS documents: Tax Topic 502 (Medical and Dental Expenses) and Publication 502 (Medical and Dental Expenses PDF). Go to www.irs.gov.
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