Many residents or their family members fail to take advantage of the tax breaks they can get from assisted living. As long as a resident or family member can meet the threshold of medical expenses to utilize the deduction, almost every expense in an assisted living facility can be tax deductible.

The main hurdle to using this deduction is the requirement by the I.R.S. that medical expenses must exceed 7.5% of a taxpayer’s adjusted gross income in order to qualify for the tax relief. For example, if someone’s adjusted gross income was $40,000.00, he could deduct any costs over and above the first $3,000.00 of expenses. This may not be as difficult an obstacle for a resident as it appears, however. Elderly persons are often earning less income than during their middle-aged years, and may be at least partially living off of savings. Thus, the 7.5% threshold may not consume more than a small dollar amount of their income. Moreover, if the children of a resident living in an assisted living facility claim their parent as a dependent on their tax return, this deduction can be passed through to reduce their own taxable income.

 

According to I.R.S. Publication 502, residents will qualify for this deduction if a doctor or registered nurse has certified that they are unable to perform at least two activities of daily living such as eating, bathing, etc. They can also qualify as having “medical need” if they require substantial supervision to protect themselves from harm because of severe cognitive impairment. The I.R.S. allows qualified residents (and their family members if they are dependents) to deduct the entire cost of living in an assisted living facility: room, board and personal care. The only unlikely exception would be if the main reason the resident was in the facility was not to receive personal care. (This would only apply to the healthy spouse of a resident who was also living in the facility.)

 

Finally, it is worth noting that this deduction can be taken in any assisted living facility, as long as a licensed doctor or nurse has certified in the Plan of Care that the resident can’t perform at least two activities of daily living or is cognitively impaired. Check with your tax professional if you have any questions about this important subject matter.

 

The Medical Needs Deduction can be a valuable tax benefit to residents and their families who are looking for ways to make assisted living more affordable. It should be pursued with your accountant if you have any reason to believe that it could help you.