Can you deduct the cost of ‘assisted living’ on your taxes?

If you live in an assisted living facility – or have a family member who does – you know that the costs continue to rise every year. But did you know some of those costs may be tax-deductible?

Medical expenses, including some long-term care expenses, may be deductible if they are more than 7.5 percent of your adjusted gross income. (You have to itemize your deductions, and the amount of the deduction varies depending on a number of other factors.)

Generally, people who are reasonably healthy can deduct only the medical component of their assisted living costs; they can’t deduct the cost of room and board. The assisted living facility is responsible for telling you what portion of your fees is attributable to medical costs. On the bright side, “medical costs” can include a portion of an entrance or initiation fee if a portion of that fee is dedicated to medical expenses.

In some cases, though, a resident can deduct room and board and other ordinary living expenses. In order to claim this larger deduction, three things must be true:

(1)   The resident is in the facility primarily for medical care, not custodial care.

(2)   The resident is “chronically ill.” This means that a doctor or nurse has certified that the resident either:

  • cannot perform at least two activities of daily living, such as eating, bathing, dressing, transferring, or using the bathroom; or
  • requires supervision due to a cognitive impairment (such as Alzheimer’s disease or another form of dementia).

(3)   Personal care services are provided according to a plan of care prescribed by a licensed health care provider. This means that a doctor, nurse, or social worker must prepare a plan that outlines the specific daily services the resident will receive. (Though it’s not required by law, most assisted living facilities prepare care plans for their residents.)

However, in all cases, expenses are not deductible if the resident is reimbursed by insurance or any other programs.

In some circumstances, adult children may get a tax deduction if they contribute to assisted living costs for a parent or other immediate family member, including an in-law. The family member must be a U.S. citizen (or a legal resident of the U.S., Canada or Mexico), and the adult child must provide more than half of the family member’s total support for the year.

Even if the adult child is not paying more than half the family member’s support for the year, the child may still be eligible for a deduction if he or she contributes to the family member’s support along with others according to a written agreement. The adult child must pay more than 10 percent of the family member’s support for the year, and, along with the others, collectively contribute more than half of the family member’s support. All those supporting the family member must sign a document called a “Multiple Support Declaration.”

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