Your assisted living expenses may be tax deductible
Our work frequently puts us in contact with professionals in the elder care field including assisted living and skilled nursing home administrators.
Recently I had the opportunity through the gracious invitation of Patricia Linberg, director of community relations at Sunrise Assisted Living of Westtown, to speak at her facility on a popular subject — tax deductions and, specifically, the tax deductibility of assisted living expenses.
In prior columns I discussed Aid and Attendance, a Veterans Administration program, to stretch some qualifying residents’ resources. Long-term care insurance, if purchased early enough, can also assist.
One often overlooked source for savings is the IRS but not everyone qualifies for the full tax deduction and, of those who would, there is a specific procedure that must be followed. The rules are technical and you should seek professional advice.
Also, if your parent is your dependent and you pay more than 50 percent of her support, you might be able to write off her medical including assisted living expenses paid by you on your tax return under these rules. See the standards below. Check with your accountant or an attorney familiar with this field for further details, but this is how it works.
Decide whether medical expenses can be itemized. Taxpayers may claim qualified medical expenses as personal deductions to the extent that they exceed 7.5 percent of their adjusted gross income. IRC Section 213(d).
Medical expenses that may be deducted include health insurance premiums, co-pays, and medical and dental expenses actually paid by the taxpayer and may also include “qualified long-term services” as defined by IRC 7702B. If they may add up to more than 7.5 percent of adjusted gross taxable income, consideration should be given to itemizing on Schedule A of the 1040.
Determine which of the two ways of factoring medical expense will be used. Many families request from the assisted living 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 7.5 percent of the resident’s adjusted gross in
come, make a deduction on Schedule A. This is one method but a second method would allow deduction of the entire room and board and related expenses above 7.5percent of AGI, not just a percentage. This second method is much more valuable.
Where it applies, follow the procedure to deduct room and board and related expenses over 7.5 percent of AGI.
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) and not just convenience or lifestyle.
In other words, to take this valuable deduction, it will be necessary to document that the taxpayer needs the assisted living services medically.
Here is how to do that.
First, a medical professional, preferably the treating physician for the resident, must have examined the resident within the previous 12 months.
The physician should certify in writing that the resident is someone who either (a) cannot perform at least two activities of daily living (ADLs) 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 someone with Alzheimer’s disease or dementia.
Second, the resident must be receiving medical services provided pursuant to a plan of care prescribed by a licensed health care practitioner. The plan of care could be prescribed by 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.
All of the rules indicated above also apply to deductibility of skilled nursing costs where payment is being made by the resident or by an adult child. Liquidating appreciated assets such as stocks, annuities, and nonresidential 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.