Yes, they are! The Health Insurance Portability and Accountability Act (also known as HIPPA) directs that qualified long-term care services are tax deductible. An assisted living resident can claim this deduction if a licensed healthcare provider certifies chronic illness.
Chronically ill in this sense means that either the resident cannot perform two or more daily living activities (i.e. eating, bathing, etc.), and/or the resident requires supervision due to cognitive impairment. Also note that a nurse or doctor is expected to certify that one or two of these illnesses are present in the resident.
However, for those who are not chronically ill, some medical care expenses may still be deductible, including entrance and initiation fees. The assisted living community will be able to tell you which of your fees go towards medical expenses.
Generally, only the medical component of assisted living costs is deductible and ordinary living costs like room and board are not. But have it in mind that if the resident is chronically ill and in the facility mainly for medical care and the care is being performed according to a certified care plan, then the room and board may be considered part of the medical care and the cost may be deductible, just as it would be in a hospital.
But if the resident is in the assisted living facility for custodial and not medical care, the costs are deductible only to a limited extent. Howbeit, the expenses are not deductible if they are reimbursed by insurance or any other programs.
In some circumstances, adult children may also get a tax deduction if their parents or other immediate family members (including in-laws) live at an assisted living facility and qualify as their dependents. But note that the family member is expected to be a U.S. citizen or legal resident or resident of Canada or Mexico and the adult child is also expected to provide more than half of the family member’s support for the year.
However, even if the adult child is not paying more than half the family member’s total support for the year, the child can still be eligible for a deduction if he or she contributes to the family member’s support according to a “multiple support agreement.”
In the United States, the adult child is expected to pay more than 10 percent of an individual’s total support for the year, and with others who also support the resident, collectively contribute to more than half of the resident’s support. All those supporting the individual must agree on and sign a Multiple Support Declaration.
How to Deduct Assisted Living Facility Costs and Expenses from Your Taxes
The Internal Revenue Code does not provide explicit guidance on a formal method for computing the deductible portion of monthly service fees and entrance fees. It simply means that the deductible portion or your fees will be determined by how your community itemizes charges. Nonetheless, here are few steps to leverage when looking to deduct assisted living costs from your taxes.
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1. Calculate your total medical expense deduction
First and foremost, note that for the tax year 2019, any qualifying medical expenses that make up more than 7.5% of an individual’s adjusted gross income can be deducted. However, to calculate your total medical expense tax deduction, start by analyzing your qualifying assisted living expenses. Then add that to the rest of your qualifying medical expenses for the tax year.
Note that your medical expense deduction is the sum total of all your qualifying medical expenses minus 7.5% of your adjusted gross income. If this number is negative, you do not qualify for a medical expense tax deduction. The Formula to use when making this calculation: Medical Expense Tax Deduction = Sum of Qualifying Medical Expenses – (Adjusted Gross Income * 0.075)
For instance, if your total qualifying medical expenses are $25,000 and your adjusted gross income is $80,000. This is how you would calculate your deduction: Medical Expense Tax Deduction = $25,000 – ($80,000 * 0.075) = $25,000 – $6,000 = $19,000 (medical expense deduction you can claim on your taxes)
2. Itemize on your taxes
Also note that you will have to itemize instead of taking the standard deduction. Note that this simply difference can mean spending more time on tax prep, but if your standard deduction is less than your itemized deductions, you should itemize and save money anyway. Also, if your standard deduction is more than your itemized deductions, take the standard deduction and save some time.
3. Use Schedule A
In the United States, Schedule A allows you to do the math to calculate your deduction. Your tax software can walk you through the steps.
4. Consider your filing status
Have it in mind that filling separately if you’re married could entail getting bigger medical-expenses deduction, but this move is risky especially since you might lose other tax breaks. Just imagine your spouse racked up $6,000 in medical bills last year.
If you file jointly and your combined AGI is $100,000, then only the portion of your medical bills over 7.5% of that — or the portion over $7,500 — is deductible. Howbeit, you can’t deduct any of your $6,000 in medical bills.
But if you file separately, your AGI is $75,000 and your spouse’s AGI is $25,000. Since the medical bills are your spouse’s, he or she could deduct anything over 7.5% of that $25,000 AGI, or $1,875. That would entail a $4,125 tax deduction for filing separately.
5. Always keep good records
It’s is important you hang onto those bills, and ask for records from your Assisted living facility or other care providers to fill in the holes. In the United States, if you’re taking this deduction, you’re maybe pretty sick or you’ve got some problems that need to be considered extensively. If that’s the case, then it is imperative that you do a good job of keeping track of every single expense and expenditure.
Everyone wants to maximize their deductions at tax time. If you or your loved one lives in an assisted living facility, there are some deductions for senior living expenses that you could claim. In addition to assisted living costs, there are several other medical expenses that can qualify for a tax deduction.
The IRS tends to always publish a well detailed list of medical expenses that qualify for a deduction, as well as information about claiming a parent as a dependent. However, for more information about assisted living or any other medical expense tax deductions, it’s advisable you visit irs.gov or consult with a tax professional in your area.