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What Type of Nursing Home Expenses Are Tax Deductible?

In the United States, nursing and retirement home expenses are considered medical expenses by the Internal Revenue Service. However, they are expected to meet certain qualifications before anyone can claim the full amount as an expense, and it is imperative you itemize your deductions to gain any benefit.

First, if the patient resides in the nursing home because he needs medical care, then you can include the cost of medical care in a nursing home, home for the aged or similar institution (i.e. assisted living facility), for yourself, your spouse or your dependents. Note that this includes the cost of meals and lodging in the facility if a principal reason for being there is to get medical care.

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But if the reasons for entering the home do not involve the need for medical care, you cannot include the portion that covers his lodging and meals. Should he receive medical care while residing in the home, you can claim those costs as a deductible expense, along with any nursing services that might be provided.

However, to effectively claim medical expenses, the person for whom they are paid is expected to qualify as a dependent on your income tax return, but note that this requirement can vary for dependents that are supported by more than one taxpayer. Notwithstanding, the person incurring the nursing home expenses needs to be your dependent either when you paid the bill or when he incurred the expense.

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Also, your dependent needs to reside in Mexico, the U.S. or Canada, or be a U.S. national or citizen. Dependents can be qualifying children or qualifying relatives, a category that also includes unrelated individuals who resided with you all year.

In the United States sometimes, it happens that no one taxpayer provides more than half of the support for a qualifying relative. For instance, five siblings might each pay 20 percent of the cost of supporting their mother. Since IRS rules state that you must pay more than 50 percent of the dependent’s support, none of the siblings is entitled to claim his or her mother as a dependent.

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Nonetheless, if these siblings choose to enter into a multiple support agreement, one of them can claim the 20 percent he paid for her nursing home expenses; the remaining four won’t be eligible to claim any portion on their tax returns. If the four siblings contributed equally to their mother’s other support, but only one of them paid for all of her medical expenses, he is entitled to claim all of nursing home expenses.

How to Deduct Nursing Home Costs and Expenses from Your Taxes

Certain medical expenses are generally deductible as an itemized deduction on an individual’s income tax return. Most individuals are unaware how expansive the term, Qualified Medical Expenses are in the tax code. Here are few steps to leverage when looking to deduct nursing home costs from your taxes.

  1. Calculate your total medical expense deduction

For federal income tax purposes qualified medical expenses can be deducted once these medical expenses have exceeded 7.5 percent of Adjusted Gross Income (AGI). Taking advantage of these deductions has the potential to significantly reduce the taxpayer’s income tax bill and could potentially eliminate it altogether.

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To calculate your total medical expense tax deduction, start by analyzing your qualifying nursing home 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 percent 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)

  1. Itemize on your taxes

It is imperative that you itemize your deductions instead of taking the standard deduction. In the United States, this 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.

  1. Use Schedule A

Medical expenses are computed on lines one through four of the Form 1040 Schedule A. You must first complete your Form 1040 through line 38, which gives your adjusted gross income. You can deduct only the portion of your allowable medical expenses that exceed 7.5 percent of your adjusted gross income.

  1. Consider your filing status

Typically, filling separately if you are married could entail getting bigger medical-expenses deduction, but this move is risky especially since you might lose other tax breaks. For instance, your spouse racked up $6,000 in medical bills last year.

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If you file jointly and your combined AGI is $100,000, then only the portion of your medical bills over 7.5 percent 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 percent of that $25,000 AGI, or $1,875. That would entail a $4,125 tax deduction for filing separately.

  1. Always keep good records

It is is important you keep hold of those bills, and ask for records from your nursing home or other care providers to fill in the holes. In the United States, if you are taking this deduction, you are maybe pretty sick or you have got some problems that need to be considered extensively. If that is the case, then it is imperative that you keep track of every single expense and expenditure.

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If you are receiving medical assistance in a nursing home, assisted living facility or hire a nurse to receive care at home, there are very necessary income tax deductions that you or your loved one will qualify for. However, the information provided above is not meant to be an exhaustive list of eligible medical expenses.

It is merely to highlight medical expenses that may be incurred for an elderly individual in need of medical and / or maintenance assistance, either in their home, nursing home or a medical facility. To get a complete listing of all qualifying medical expenses, please see Publication 502 provided by the Internal Revenue Service.