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4 Important Facts: Tax Breaks & Assisted Living

Questions often arise about the cost of assisted living and whether any of those costs are tax deductible. These four basic principles concerning tax deductibility of assisted living expenses help answer the most-asked filing questions:

#1: According to HIPAA (the 1996 Health Insurance Portability and Accountability Act), “long-term care services” may be tax deductible as an unreimbursed medical expense on Schedule A. Qualified long-term care services have been defined as including the type of daily “personal care services” provided to assisted living residents, such as help with bathing, dressing, continence care, eating and transferring, as well as “maintenance services”, such as meal preparation and household cleaning.

#2: Assisted living residents seeking tax deductions for their services must qualify as “chronically ill”. This definition refers to seniors who need assistance with two or more “Activities of Daily Living” or who need constant supervision because of a “severe cognitive impairment” such as Alzheimer’s disease or related dementias.

#3: In order to qualify for a deduction, personal care services must be provided “pursuant to a plan of care prescribed by a licensed health care practitioner”. In assisted living communities, the “Service Plan”, which is developed by the community’s nurse in consultation with the resident’s physician, can meet this criteria for a deduction.

#4: In order to take advantage of deductions, a taxpayer must be entitled to itemize his or her deductions. Additionally, long-term care services and other unreimbursed medical expenses must exceed 7.5% of the taxpayer’s adjusted gross income. (Generally, a taxpayer can deduct the medical care expenses of his or her parent if the taxpayer provides more than 50% of the parent’s support costs.)

Reference These IRS Publications for Current Tax-Year Details

There are restrictions and thresholds in place, so be sure to consult with your tax advisor or accountant. You can also review these three IRS publications for details on the current tax year:

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