No matter whether you are just beginning to look at senior living options and how they might fit into your financial plan or you are already part of senior living community life, it is wise to always be on the lookout for ways to offset your costs. Although you might be able to offset some costs by utilizing long-term care insurance, Veterans Aid and Attendance benefits, or community waivers, there could be another way to find financial relief.
One way some family members and their loved ones offset costs is by looking into potential senior living tax deductions. Although tax laws are always evolving from year to year, we have rounded up some information that might be helpful for you and your situation. Of course, always consult with your accountant or financial advisor if you have specific questions.
Independent living expenses are not generally tax deductible unless you live in a Life Plan community, sometimes referred to as a continuing care retirement community. For a more traditional independent living community, monthly fees are not typically tax deductible.
However, if you or your loved one receives medical services via a visiting home care nurse or caregiver, you may be able to write off those expenses. In this case, only medical services that are performed or given by a home care worker can be deducted. These skilled services can include wound care, chronic disease management, or medication management.
Not all assisted living costs can be deducted, but if you or your loved one calls an assisted living community home, you may be able to deduct some service expenses or fees. In order to itemize deductions for medical services, you will need to meet a few requirements.
First, a physician or nurse must certify that either the assisted living resident cannot perform at least two activities of daily living (ADLs) without caregiver assistance or they require supervision due to cognitive decline or impairment. ADLs include bathing, grooming, dressing, toileting, eating, ambulation, and transferring.
If that requirement is met, the resident must also have a care plan that outlines the assistance they require. In Cedarhurst communities, for example, every assisted living resident has a personalized care plan that outlines their services, interventions, and preferences.
Medical expenses, such as the part of assisted living fees that goes toward assistance and interventions, can be deductible if those expenses are greater than 7.5 percent of the person’s adjusted gross income. In many cases, 100 percent of the monthly fee can be considered a “medical expense” and can be deducted as long as it meets the criteria of being more than 7.5 percent of the resident’s adjusted gross income.
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Similarly, memory care costs might be eligible for a tax deduction. The requirements for itemizing medical expenses are the same as those for assisted living.
Just like with assisted living, the resident must either need assistance with at least two activities of daily living or have cognitive decline. Because the person is living in a memory care community, they already meet the cognitive decline component, and their community will likely have a care plan in place that outlines the type of supervision and services they need.
If the medical expenses are more than 7.5 percent of the person’s adjusted gross income, they can be deducted.
Skilled nursing services that are not covered by Medicare are also eligible for a deduction as a medical expense. If the person is living in a skilled nursing facility for medical care, which is the primary reason for most residents, the entire cost is considered deductible as a medical expense.
It is important to note that adult children who pay for a loved one’s care can also be eligible to deduct those medical expenses on their tax return. If your loved one is considered your dependent, you are eligible to claim their medical expenses on your taxes if they meet the criteria of having a care plan and needing supervision.
In order for your loved one to be considered a dependent, they must not have earned or received more than the gross income test limit for the tax year. This test limit is set by the Internal Revenue Service and can vary from year to year. IN 2021, THAT LIMIT WAS SET AT $4.300, but it typically does not include income they may receive from Social Security.
Other Things to Keep in Mind
In order to claim medical expenses on a tax return, the person needs to itemize those amounts on their Schedule A form. Tax laws can, and do, change regularly. Therefore, it is important that you consult with your accountant or financial advisor well before the tax deadline approaches for the year. You don’t want to end up feeling rushed to learn new information or to gather important documents that might be needed for the deduction.
You can also talk with the senior living community to see if it has guidance as you begin to research tax-deduction possibilities. At Cedarhurst communities, we are dedicated to answering questions and guiding residents and their family members to the right care and financial decisions. Contact us to learn more.
The content on this site is for informational and educational purposes only and does not constitute financial, accounting, or legal advice.
This post was originally published in January 2022 and updated in February 2023.