Standard Deductions vs. Itemized Deductions
Everyone is eligible for a standard deduction. This standard deduction reduces your total taxable income. In the case of people with low income, it may reduce your taxable income to nothing at all. This is a common scenario for seniors who depend on Social Security or small investments as their sole source of income.
If your total deductions are less than the standard deduction, or if you or your loved one have income that is less than the standard deduction, you don’t need to worry about itemizing deductions. It won’t be worth the effort.
To determine your standard deduction for the upcoming tax year, use the IRS “How Much Is My Standard Deduction?” calculator.
Senior Living and Healthcare Expenses
What if you have significant senior living expenses? How do those expenses impact your or your loved one’s taxes?
Some senior living expenses are tax deductible, but generally only if they qualify as healthcare expenses. This means that most independent living costs won’t be deductible. You may, however, be able to deduct certain services you or your loved one receive in independent living if they are directly related to medical care and health. Those services may include:
- Occupational therapy
- Physical therapy
- Speech therapy
- Home health aides
- Meal preparation
If you or your loved one are in assisted living or memory care because of a qualifying medical condition, you can usually deduct those expenses—but again, the costs must be directly related to medical care and health. For instance, the basic costs associated with assisted living are deductible, but any additional costs (such as landscaping fees) are not.
One final caveat for deducting health-related senior living expenses: They have to exceed 7.5 percent of your adjusted gross income. If you have only a few hundred dollars in qualifying expenses, it may not be worth the effort to itemize them.
Other Senior Living-Related Tax Deductions
In a small number of other circumstances, you or your loved one may be able to seek other deductions while in a senior living community. You can deduct the costs of a dedicated home office space, but only if that space is used exclusively for a home office.
If you or your loved one run a business out of an independent living apartment (even if it’s just a hobby business and not the primary source of income), you may be able to deduct a proportional share of monthly rent. For example, if the monthly rent is $1,000, and the home office takes up a quarter of the apartment’s space, you can deduct $250 of rent each month, or a total of $3,000 for the year.