Senior Living Taxes 101
Whether you’re looking into senior living communities for your parent or loved one or they’re already a resident, it’s wise to have a financial plan and look for ways to offset costs. Senior living costs may be offset with options such as Veterans Administration benefits, Social Security benefits, or the sale of a home or other property. Tax deductions may also be a way to offset some of the costs of senior living for your parent or loved one.
The IRS adjusts allowances, thresholds, and federal income tax rates for inflation each year. In addition, your parent’s or loved one’s financial situation may change from year to year. It’s important to know what deductions your parent or loved one may qualify for and make sure to keep relevant documents organized and at hand.
To help you and your parent or loved one with this year’s tax laws, we’ve rounded up some helpful information about available tax deductions and what types of senior living expenses may qualify.
It’s important to note that everyone’s financial situation and taxes are different. While we can point you in the right direction in this article, we recommend reaching out to your tax advisor for information specific to your situation.
Available Tax Deductions
The available tax deductions are standard and itemized.
A standard deduction is a figure that taxpayers use to reduce taxable income, which is the amount of adjusted gross income (AGI) minus standard or itemized deductions. Standard deductions depend on age, income, and filing status. This figure changes each year.
The IRS has set the following tax deductions for 2023:
- Single filers and those who are married but filing separately have a standard deduction of $13,850.
- Those who are categorized as head of household (an unmarried taxpayer who provides support for and houses a qualifying dependent) have a standard deduction of $20,800.
- Taxpayers who are married but filing jointly have a deduction of $27,700.
- Married seniors age 65 or older have an additional deduction of $1,500. If they’re unmarried or a surviving spouse, it’s $1,850 instead.
The amount of itemized deductions varies for each individual because it isn’t a fixed amount like the standard deduction. Itemized deductions take all applicable deductions and subtract them from the taxable amount.
To itemize deductions, they must be filled out in the Schedule A Form. Itemized deductions may include:
- Real estate sales
- State and local income taxes
- Disaster losses
- Personal property taxes
- Mortgage interest
- Medical expenses
When to Itemize or Take Standard Deductions
Claiming a standard deduction is easier because you and your parent or loved one don’t need to keep track of expenses throughout the year or keep a file of invoices for applicable expenses. However, It’s best to itemize deductions when the allowable deductions total more than the standardized deduction or when the standard deduction isn’t applicable.
To itemize deductions, you and your parent or loved one will need to keep supporting documents such as bank statements, receipts, and medical bills. This may sound like a lot of work. However, if your parent or loved one has had more in applicable itemized deductions (especially qualifying medical services in a senior living community) than they would for a standard deduction, it may be worth it.
Tax Deductions for Different Types of Care
There are various types of senior living communities, and depending on the unique needs of your parent or loved one, the cost will vary—and the tax deduction will also vary.
Not all assisted living expenses can be deducted, but your parent or loved one may be able to itemize some medical service expenses. These expenses must meet a few specific requirements to qualify for deduction.
First, there must be nurse certification of at least two activities of daily living that require caregiver assistance because of cognitive decline or impairment. According to the 1996 Health Insurance Portability and Accountability Act (HIPAA), activities of daily living are dressing, grooming, bathing, eating, toileting, transferring, and continence. Your parent or loved one must have been unable to perform two or more of these activities for at least 90 days. If that first requirement is met, then your parent or loved one must also have a care plan outlining the assistance they require.
The medical expenses portion of your parent’s or loved one’s assisted living monthly fees may be deductible. These expenses go toward interventions and assistance your parent or loved one may need, and they may be deductible if they’re more than 7.5 percent of your parent’s or loved one’s AGI. Most of the time, 100 percent of this portion of the monthly fee can be deducted if it’s 7.5 percent or more of your parent’s or loved one’s AGI.
Skilled Nursing Care
Skilled nursing services not covered by Medicare may be eligible for tax deduction as a medical expense. If your parent or loved one is living in a skilled nursing community specifically for medical care, the entire cost is deductible as a medical expense.
Memory care costs may be tax deductible if your parent or loved one needs assistance with at least two activities of daily living or has cognitive decline, similar to the requirements for assisted living expense deductions.
If your parent or loved one is living in a memory care community, they likely already meet the cognitive decline requirement, and they’ll likely have a care plan documenting the services required. Just like assisted living, the medical expenses must be 7.5 percent or more of your parent’s or loved one’s AGI.
Long-term care expenses may be tax deductible under HIPAA. The services provided must be medically necessary, such as therapeutic, preventive, diagnostic, and rehabilitative services as well as personal care or maintenance services.
The only at-home services that can be tax deductible are those performed by a home care worker. These services may include—but are not limited to—wound care, medication administration, and caring for individuals who are chronically ill. “Chronically ill” means that an individual needs assistance with at least two activities of daily living and have been unable to perform these activities for at least 90 days.
Important Information to Keep in Mind
You may be able to claim your parent’s or loved one’s medical expenses on your tax return if they are considered your dependent and they require skilled care and have a care plan. To claim medical expenses on a tax return, the expenses must be itemized on the Schedule A Form.
Your parent’s or loved one’s senior living community may be able to point you in the right direction for information on tax deductions. However, because tax laws change regularly and the senior living community may not know the specifics of your situation and tax requirements, it’s critical to speak with your tax advisor well before the tax deadline to find out the key information you need and avoid rushing to collect important documents.
Need more information on tax deductions? Our guide Senior Living Taxes: The Basics and Beyond provides an overview of key tax information.
Once you have the information you need on senior living costs and tax deductions, you may be wondering what comes next. Is it the right time for your loved one to move into a senior living community? Take our quick, free assessment to find out.