Stretch Assisted Living Dollars With Tax Deductions
While many have not yet recognized this fact, assisted living facilities such as Sunrise, New Seasons, Bellingham, and others and the assisted living portions of continuing care retirement communities are gradually standing side by side with nursing homes as a primary residence for those with serious chronic care needs. This movement results partly from programs initiated by assisted living communities that incorporate “memory neighborhoods” and similar services for residents with Alzheimers, dementia, and illnesses requiring a higher level of care. The flip side is continuing pressure by government to encourage the severely chronically ill person to stay at home. Most elderly do not require much encouragement to remain home. However, when this is no longer possible, many opt for assisted living as the next alternative.
When analyzing cost, the most obvious difference between assisted living and nursing homes is that, although assisted living may cost less, Medicaid can eventually cover the cost of nursing home care in a Medicaid certified nursing facility. Assisted living in Pennsylvania now is entirely private pay although this might change some time in the future with Pennsylvania’s new Assisted Living Statute.
This discussion is not to suggest that assisted living can handle all residents with extreme care needs but only that this is the direction that care is taking.
Recognizing the cost of assisted living which can begin in the area of $5,000 per month and that additional personal aides may be hired to assist at further expense, families need to consider any reasonable means to stretch their dollars. Otherwise, when their family member’s funds are spent, typically the resident must leave or find alternate placement. In prior columns I discussed Aid and Attendance, a Veterans Administration program, to stretch a resident’s resources. Long term care insurance, if purchased early enough, can also assist. Another break both for assisted living or skilled care might come from an unexpected source, the Internal Revenue Code and tax deductions, but only in limited circumstances. Here is how it works. Check with your accountant for further details.
On Schedule “A” of the Form 1040 Tax Return, taxpayers may claim qualified medical expenses as personal deductions to the extent that they exceed 7 ½ percent of their adjusted gross income. IRC Section 213(d).
Medical expenses that may be deducted may include “qualified long-term services” as defined by IRC 7702B. For room and board and related expenses to be deducted medical care must be a “principal reason for <the resident’s> presence <in the facility>.” Treas. Reg. Section 1.213-1(e)(1)(v). Otherwise, only that part of the cost of care in a facility as is attributable to medical care can be considered a cost of medical care.
Practically speaking, what the family must do is either request from the facility what portion of care, usually expressed as a percentage, is considered to be attributable to medical care and then, to the extent that figure is more than 7 ½ percent of the resident’s adjusted gross income, make a deduction on Schedule “A” or try to qualify to deduct all of the cost.
Here are the basic criteria to deduct all of the cost including room and board.
Services must be (a) required by a chronically ill individual and (b) provided pursuant to a plan of care prescribed by a licensed health care practitioner.
A chronically ill individual is a person who has been examined and certified by a licensed health care practitioner within the previous 12 months as either someone who (a) cannot perform at least two activities of daily living (ADL’s) such as eating, bathing, dressing, toileting, transferring and continence without substantial assistance from another individual for at least 90 days due to a loss of functional capacity or (b) requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
The second requirement applies most often to a person with Alzheimer’s disease or dementia.
A plan of care is prescribed by a licensed health care practitioner who could be a physician, registered nurse or licensed social worker who has examined the resident. Skilled nursing facilities are required by federal law to prepare written plans of care. Many assisted living facilities also prepare them.
Liquidating appreciated assets such as stocks, annuities, and non-residential real estate to pay for care often generates significant tax liabilities. Being able to deduct medical costs can be a step in the right direction to stretch assets and enable the family member to remain longer in assisted living.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.