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. However, if an individual or an individual’s spouse was at least 65 before December 31, 2018, a deduction will be allowed for 2018 tax year to the extent medical expenses exceed just 7.5% of adjusted gross income. Alas, it goes back to 10% for everybody beginning tax year 2019 and later,
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 7.5% of $45,000 (which is $3,375). If they have medical expenses of $20,000, then they would be able to deduct $16,625 ($20,000 – $3,375).
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 7.5% of $90,000 ($6,750).
The deduction of $41,850 ($48,600 – $6,750) should help out a great deal!
Note: This article is a heavily edited version of an article I originally posted in 2012 and 2015. It is still an interesting and timely topic around “tax time.” I left some of the original 2012 and 2015 comments below because they continue to be relevant.