Mom is in an assisted living facility. Mom and Dad both receive Social Security (total is about $20,000). Dad receives a federal retirement system pension of $35,000.
Because the assisted living facility costs about $3,800 monthly ($45,600 annually) and they have other unreimbursed medical expenses (mostly drugs) of $3,000, Dad has liquidated half of a $100,000 IRA and plans to liquidate the other half next year (because he read one of Bob’s blog posts that it would be cheaper to liquidate an IRA over time rather than in one year). Unless Dad can figure out some tax deductions, Mom’s and Dad’s taxes are going to hurt.
He just might be in luck, however. Depending upon Mom’s condition (and with a bit of planning) the assisted living facility costs might be tax deductible.
The Deductibility of Medical Expenses
Section 213 of the Internal Revenue Code provides a tax deduction for medical expenses to the extent medical expenses exceed 10% of adjusted gross income.
Example: If a married couple over age 65 had gross income of $50,000 and adjusted gross income of $45,000, they would be able to deduct some of their medical expenses not paid for from other source like insurance if the medical expenses exceed 10% of $45,000 (which is $4,500). If they have medical expenses of $20,000, then they would be able to deduct $15,500 ($20,000 – $4,500).
How Assisted Living Expenses Become Tax Deductibile
Back to Mom and Dad and their potential whopping tax bill. The trick is to determine if Mom’s assisted living facility costs qualify as expenses for “medical care.” Clearly nursing home expenses are deductible, but assisted living is a bit less certain.
Section 213 says that “medical care” includes “qualified long-term care services.” Hmmm. What assisted living expenses might be “qualified long-term care services” for purposes of the tax deduction?
Qualified long-term care services (according to Code section 7702B if you happen to be a Tax Code Junky) include diagnostic, preventive, therapeutic, maintenance, and other care services required by a “chronically ill individual” pursuant to a care plan prescribed by a licensed health care practitioner.
Is Mom Chronically Ill?
The key is to determine if Mom is “chronically ill” and to make sure you have a written plan of care prescribed by a physician, nurse, or other licensed medical practitioner.
To be “chronically ill” Mom must either (i) be unable to perform at least two activities of daily living (called ADLs) for at least 90 days, or (ii) require substantial supervision in order to protect her health or safety due to cognitive impairment (in other words . . . dementia). ADLs include eating, toileting, transferring (in and out of wheel chairs and beds), bathing, dressing and continence.
So, if Mom is unable to perform at least two of the ADLs for more than 90 days OR she has dementia and requires close supervision, she qualifies as “chronically ill.” Make sure to get the written plan!
If Mom is in the assisted living facility because she needs a “little help” Dad could have some problems. On the other hand, if Mom cannot get in and out of bed, bath and eat by herself, or if she is perhaps in the locked Alzheimer’s unit, Dad will be able to use the assisted living facility costs as a potential medical deduction.
Deductible Assisted Living Facility Costs
To return to Mom’s and Dad’s situation above, they have $48,600 of medical expenses (the assisted living facility costs and the unreimbursed drug expenses). If Dad figures adjusted gross income of, say, $90,000, then he can deduct the expenses over 10% of $90,000 ($9,000).
The deduction of $39,600 ($48,600 – $9,000) should help out a great deal!
Note: This article is a heavily edited version of an article I originally posted/updated in 2012, 2015, 2019, and 2020. It is still an interesting and timely topic around “tax time.” I left some of the older, original comments below because they continue to be relevant.
Great article! Enjoyed reading it.
Bob Mason says
I found your recent article on deductibility of assisted living expenses interesting.
Both of my parents have Alzheimer and definitely cannot perform 2 or more of the ADL’s. As their POA, I use what money they had saved to pay for in home care for them 24/7. It is costing about 70K per year. I pay SS withholding, withhold employee tax, pay unemployment tax, have the necessary tax ID numbers, the whole bit.
Does the assisted living deduction only apply to assisted living facility expenses or can it be used for expenses paid to in home caregivers which we employee?
Bob Mason says
Randy: In-home care is deductible if it meets all the other requirements I outlined in the post (ADLs, written plan), BUT pursuant to IRC § 213(d)(11) direct or indirect payments to family members are not deductible UNLESS the family member is licensed with respect to the service rendered. Perhaps I should have put that in . . . I was focused on assisted living when I wrote it. The licensed home care folks ought to be happy, but not the unlicensed children who are operating under a care agreement (which isn’t all that uncommon for my clients).
Bob: Would you expound a bit on the “care agreement” with unlicensed children that you mention in your above response to Randy? Do the same rules apply to relatives other than children of the care recipient?
Thanks for putting your information in terms that even I can understand.
Bob Mason says
Ann: They’ve got “family” pretty well covered. For these purposes the Internal Revenue Code defines “family” as any descendant, siblings, step-siblings, nieces and nephews, aunts and uncles and in-laws.
I may do a post on care giver agreements soon (if I thought there was interest). For Medicaid purposes, the NC Division of Medical Assistance is fairly (I think impermissibly so) strict on caregiver agreements, claiming they are transfers of assets if they don’t meet many requirements. The VA rules are fairly lax and allow these agreements to be used to pay children (or others) for care that results in lowering monthly applicant income and increasing available VA benefits. Of course, with any caregiver agreement, one must do something along the lines of what Randy has done (pay attention to formalities, treat income paid as taxable income, etc.).
My Mom has a similar situation to the one initially described above.
She is now 89 years old and has been diagnosed with early Alzheimers. She is not capable (safety-wise) of living on her own, but she is not ready for a nursing home at this point. Her home was deeded a life estate over five years ago to protect it. She vacated her home and has been in assisted living for over a year. We are currently paying for the assisted living from Mom’s social security and my deceased father’s federal retirement survival benefits, supplementing it with the remainder of Mom’s investments, which have dwindled to almost nothing. Because we needed the money to replace those dwindling investments to pay for her care, we recently fixed up her home and put it on the market. We are due to close the end of this week. It will be split into four shares for the four children mentioned in the deed. Four 1099’s will be sent out at the closing for the four 25% shares. All of the money disbursed will be put into a single account to pay my mother’s assisted living expenses. Is there any way that the siblings can get a tax break on their shares come tax time next year?
Thanks for any help you can give me.
Bob Mason says
I don’t see how siblings will get a tax break . . . however, if title to the home is a life estate in your mother, something like 30% of the sale proceeds will be your mother’s. She very likely is entitled to a capital gains tax exclusion with respect to her 30% share because she is selling her interest in her principal residence. Tax will be due on the other 70% from the children. What state are you in?
The life estate question is the exact issue I am looking into. Several years ago my mother’s home was deeded to 3 children, she with lifetime rights to the home. She has come to a point where she is just not safe in that setting and we are hoping to move her into an independent living facility which also has all of the levels of care available that she will need in the future. My brothers and I are desperately trying to figure out the best route to go so that a) my mother has as much money available for rent in an independent living setting and b) that my brother’s and I aren’t taxed so greatly. We certainly cannot afford that. I have absolutely no idea what is the best way to handle this. I had wondered if there was a way for us to gift it to a trust for her somehow that she wouldn’t be taxed out of control, but the reason we took her home out of her name….well, you know understand that reasoning, Medicare/Medicaid. If we could gift a trust by any chance (probably not possible), we could all three do this year of 11,000 or whatever it is, and then again in January. This was such a FANTASTIC event for my mother to come to the point that she agreed she needed to move – that now trying to get her the most money out of her home as we can without the taxes killing us kids – it is really overwhelming – we are thrilled she has reached this point – we have been so worried about her safety, but now, it is a whole different worry. We are in NC by the way. Thank you. Jean
Bob Mason says
The home is noncountable and will be safe as it is. Or you just trying to get some money out of it for her benefit? You may have some alternatives . . . maybe rent the house to raise money? The $11,000 (now $13,000) is a gift tax issue and has nothing to do with Medicaid.
You might find this life estates article useful: http://masonlawpc.com/2012/05/life-estates-in-5-minutes/
You are correct . . . if you sell the house a portion of the proceeds (the amount representing your remainder interest) will be taxable capital gains to you and your brother.
Call Stacey Kinney (my paralegal) at 336-610-6000 if you need a consultation.
David and Nancy Adams says
Nancy and I do not pay any income taxes ( SS and pension annunity for income). Mom also does not pay any income taxes. Mom is in assisted living facility at this time. She can qualify for needing supervised care, 24 hours per day. She has to be bathed, helped in and out of a wheel chair, helped being dressed, etc.
Since we are not paying any income tax to the governments, can we deduct the money that we pay for moms care?
Bob Mason says
If you are not paying any income tax, what would you deduct expenses from?
Ivette Sosias says
I hold a friend’s POA and in 2020 paid a portion of his ALF costs as well as other medical expenses. Can either of us deduct the amounts paid on our tax return? Thank you.
bob mason says
I assume as POA you used your friend’s assets. If so, they may generate a deduction as explained in the article.