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Paying for assisted living is a significant financial commitment that most seniors and their families must plan for carefully. But good news! Many of the expenses of assisted living residents are tax deductible. Such deductions can help add more flexibility to the budget and free up funds that otherwise would have gone elsewhere. A major way to find tax savings is to deduct your medical expenses. Three conditions need to be satisfied in order to get the greatest possible deduction for assisted living expenses:
  • The individual must qualify as being “chronically ill.” The Health Insurance Portability and Accountability Act of 1996 defines this as needing assistance with activities of daily living (bathing, dressing, eating, etc…) or requiring continual supervision at all hours of the day.
  • Second, the ratio of the adjusted gross income of the person paying for care to the total amount of medical expenses must be greater than 7.5%.
  • Finally, the resident’s care plan must be in accordance with the recommendations of a licensed health care provider (for example, a doctor, nurse, or social worker). Most assisted living facilities will automatically provide this and residents and their families will have official documentation that meets this requirement.
If these three items apply to you, you may be able to deduct all your assisted living costs, even those related to room and board. Even if you do not qualify as chronically ill, the portion of your assisted living fees related to medical care can still be deducted, as long as total medical expenses are greater than 7.5%. Your assisted living facility should be able to provide you with information on what part of your fees are related to medical care. All documentation related to tax deductions, whether relating directly to medical expenses or otherwise, requires meticulous record keeping. This means that you will need to be diligent about itemizing every single medical expense that you believe is eligible. Obviously, fees for appointments and prescriptions are part of this, but you can also deduct less-obvious health-related costs such as eye glasses, dentures, canes and walkers, transportation to appointments, etc… If you pay premiums for long-term care insurance, these are deductible as well. However, you cannot deduct the portion of your assisted living fees paid for by your long-term care insurance. For more information about the tax implications of being an assisted living resident, consult with your accountant to learn how the options apply to your specific situation. Your accountant can also help you identify additional tax credits that you may qualify for, as well as guide you with similar deductions for your state tax return.