Around one million seniors are living in Assisted Living communities in the United States, many of whom pay monthly fees from their financial resources. Luckily, a portion or all assisted living costs could be tax deductible. According to the IRS, qualifying medical expenses that comprise over 7.5% of your adjusted gross income can be subtracted from taxes. Medical expenses encompass at least a small amount of monthly service and entrance fees within assisted living communities. Therefore, those filing taxes must be familiar with the requirements to qualify for the medical tax removal and speak to tax advisors on how to calculate the percentage that qualifies as medical expenses.
Assisted Living Tax Deductibility Requirements
Per Health Insurance Portability and Accountability Act (HIPAA), assisted living services could meet tax deductibility based on an unreimbursed medical expense when following Schedule A. Based on HIPAA, for assisted living costs to be tax deductible, residents must meet the following:
- Require extensive supervision because of cognitive impairment like dementia or Alzheimer’s Disease.
- Resident care is bestowed by a licensed medical professional with a specific care plan, which must be written outlines of daily services.
- The resident must be categorized as “chronically ill,” which is defined as seniors who are unable to perform at least two daily activity learnings alone including dressing, eating, toileting, bathing, continence, and transferring.
- The taxpayer must itemize their deductions.
If you are your loved one is currently an assisted living resident, there is a high probability these requirements are already met. However, you must consult a tax professional before deducting any expenses. Non-medical expenses like guest meals and the beauty salon will never fall under these tax deductibility requirements.
What Percentage Can You Deduct?
The IRS does not offer specific guidance on the exact method of computing tax-deductibility of entrance and monthly service fees. Therefore, the deductible segment of these fees is determined based on how your assisted living community itemizes costs. Moreover, if your fee is paid toward non-medical costs like meals and housing, then these expenses do not meet the tax deductibility requirements. Your assisted living community should offer more information on how they itemize, and which portion of charges are medical-related. This will help you determine the tax-deductibility of assisted living fees.
How to Calculate Your Medical Expense Deduction
To calculate your medical expense deduction, begin by understanding your assisted living expenses that meet the tax qualifications. Next, add that to the remainder of your medical expenses for the year. Your deduction is the amount of all qualifying expenses minus 7.5% of your total adjusted gross income. If your calculation results in a negative amount, then you are not eligible for a tax deduction.
Other Medical Expenses You Can Deduct
Aside from assisted living costs, several other medical expenses exist that allow you to qualify for a tax deduction. Publication 502 from the IRS provides a comprehensive list of medical expenses that meet the qualifications for tax deductibility and additional information regarding claiming your parent as a dependent.
Taxes for those living in an assisted community can become confusing so it is always advisable to contact a tax professional who can help determine which medical expenses are tax deductible and which medical expenses do not meet the requirements. The directors at most assisted living facilities cannot offer specific tax advice but may be able to connect you with a tax professional who is experienced in this type of tax code. This is a good starting point for you to acquire professional advice. In most cases, those in assisted living communities likely meet the requirements but it is always better to confirm in advance.