Every year, when tax season rolls around, everyone is looking to maximize their deductions, save money, and either increase their return or reduce their tax payment. Some senior living expenses, including medical expenses and assisted living expenses are tax-deductible – within certain parameters.
It’s important to note that each financial situation is unique and personal and that a tax advisor can help you sort through your own taxes to uncover deductions that may apply to you. Keeping that in mind, here are some general guidelines to follow when it comes to claiming caregiver and assisted living tax deductions. Additionally, these guidelines are for the 2017 tax year and do not account for the tax reform coming in 2018.
Tax Deductions for Medical Expenses
IRS rules allow citizens to deduct any insurance premiums that have been paid for medical insurance or long-term care insurance that covered or partly-covered qualified long-term care costs. How much long-term care premiums can be claimed is dependent on age.
Additionally, out-of-pocket medical expenses not reimbursed by insurance may be deducted. Qualifying expenses include preventative care, surgery, treatments, dental care, and vision care. Over-the-counter medications, gym memberships, or cosmetic surgeries are not deductible.
To deduct any medical expenses, you must be eligible to itemize deductions according to Form 1040, Schedule A. Itemized expenses must fall into the IRS definition of qualified expenses. If you and your spouse are over the age of 65, you can deduct medical expenses that exceed 7.5% of your adjusted gross income. For taxpayers under the age of 65, medical expenses must exceed 10% of your adjusted gross income.
Tax Deductions for Assisted Living Expenses
The Health Insurance Portability and Accountability Act (HIPPA) of 1996 ensured that qualified long-term care services may be tax deductible. These expenses must be itemized and unreimbursed, often including assistance with activities of daily living, meal preparation, and household cleaning.
Assisted living residents may only claim these deductions if they were certified to be chronically ill by a licensed healthcare provider. Being chronically ill is typically defined as being unable to perform at least two activities of daily living or being unable to protect against threats to health and safety.
Care services must follow a prescribed plan from a licensed health care provider to be tax deductible. Most assisted living communities have licensed nurses or social workers who can provide this. The plan should outline the daily care that the taxpayer needs and address how it helps the person’s chronic condition.
Tax Deductions for Caregivers
There are also tax breaks for family caregivers who are paying for a senior loved one’s medical expenses out-of-pocket. To qualify for these deductions, caregivers must be able to claim that senior as a dependent and be paying for at least 50% of their living expenses. Caregivers who meet those requirements can deduct medical expenses that exceed 7.5% of their adjusted gross income.
To understand more about your personal tax situation and your deductions, contact a tax advisor. Additionally, our communities are skilled in all aspects of senior living – including paying for care, and benefits for residents and their families. Contact one of our communities today to discuss all the benefits of a move into senior living.