Understanding Deductible Medical Expenses for Assisted Living

April 08, 2016

Living well isn’t cheap. According to the CDC, more than 700,000 seniors reside in over 22,000 assisted living facilities nationwide, and medical costs continue to rise each year. How can you catch a break?

The good news is that some or all of your assisted living costs may be tax deductible. If diligent record keeping is kept throughout the year, those requiring room and board, personal care, and transportation to medical appointments can add up to a substantial amount of write-offs come tax time.

If you or a loved one resides in an assisted-living facility, take the time to understand deductible medical expenses.

Optimizing Medical Expense Deductions

For most retirees, tax time is filled with financial chaos. Determining whether or not a certain medical cost can be deducted can quickly turn into an iffy situation. The Health Insurance Portability and Accountability Act (HIPPA) states that long-term services may be deductible as a Schedule A – Itemized Deduction, under Medical and Dental Expenses. Of course, the extent of deductibility depends on whether the individual is ‘chronically ill’ or ‘cognitively impaired:

Section 7702B (c)(1) of the IRS Code defines “qualified long-term care services” as necessary diagnostic, preventative, therapeutic, curing, treating, mitigation, and rehabilitative services and maintenance or personal care services required by a ‘chronically ill’ individual and provided pursuant to a ‘plan of care’ prescribed by a licensed health care provider.

To be considered ‘chronically ill’, you must be certified as being so by a licensed health care professional within the last 12 months. Other “tests” are also considered when placing a claim of ‘chronically ill’ on a senior. An individual who is defined as ‘chronically ill’ is unable to perform two or more daily living activities without substantial assistance. These activities include toileting, eating, bathing, dressing, transferring, and continence. If you’re not considered to be ‘chronically ill’, other medical deductions are still available.

Ability to deduct medical expenses is not always cut and dried. In general, in order to qualify as a deduction, all personal care services provided must be in accordance to a care plan prescribed by a healthcare provider. IRS regulations state that if medical care is the principal reason for an individual’s presence at an assisted living facility, then the entire cost of medical care, including meals and lodging, are deductible. Maintenance and other personal care services for the chronically ill are also deductible.

So now that you have an idea of what you can and can’t deduct, it’s time to determine how much you can deduct. If you are 65 years of age or older, you can deduct amounts that are >7.5% of your Adjusted Gross Income. If under 65, you can deduct >10% of AGI. In most cases, the taxpayer who is receiving the care will claim this deduction. In some situations, a qualifying relative can claim the individual as a ‘dependent’ and claim the deduction.

A Look at Your Retirement Income

Have you considered how your retirement income may impact your taxes? For every dollar you receive outside of social security income, the more taxable your social security income becomes. Get ahead of the game by playing it smart with your retirement distributions. Don’t forget to take these distributions yearly, and always be on the lookout for opportunities to withdraw more funds at lower tax brackets. Also take the time to review your assets and understand your options to minimize your tax exposure.

When it comes to medical expenses, the rules of deductions are not always clear. Should you have any further questions regarding deductible medical expenses for assisted living, consult with a qualified tax professional.

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