Important Tax Deductions for Assisted Living
As your parents or other senior loved ones age, you are most likely playing a role in their care. And while some prepared seniors may have the funds to cover their care costs, many will end up needing financial assistance from family members. The good news is that some of these expenses may actually be tax deductible, a helpful fact to remember when it’s time to file.
For example, if you are helping pay for the care for a chronically ill loved one or for someone who needs assistance performing two or more activities of daily living (ADLs) – such as getting dressed, preparing meals, or hygiene care – you may be able to write off the costs related to medical care.
What do you qualify for?
If these costs represent at least 10 percent of your adjusted gross income (or, if you are over 65, at least 7.5 percent of your income), you should take a close look at which of these medical expenses could be used as deductions the next time you file. There are several stipulations your loved one must meet in order for you to be able to claim their medical expenses on your taxes. They include:
- He or she must have been diagnosed as “chronically ill” by a medical professional
- Or he or she must be diagnosed with a cognitive disorder, such as dementia or Alzheimer’s disease, at a level that impairs ADLs.
- He or she must be being cared for according to a professionally prepared plan of daily care, typically created by a primary care physician, nurse, or social worker, (although care facilities often can and do create care plans as well).
- The medical expenses are not being reimbursed by insurance or other programs
What about room and board?
Typically you can only claim true medical expenses on your taxes. However, if your loved one is chronically ill and is living in a care facility treating them with a daily care plan, you may be able to claim part or all of the room and board. If your loved one is living in more of a custodial care situation, then you may not be able to claim these as medical expenses but may still be able to claim registration and entrance fees. Your care facility should have a list of what can be claimed on taxes.
Sharing the cost with family members
Additionally, if you are paying for more than half of your loved one’s care and you can claim them as a dependent, you may be eligible for additional tax deductions (this applies to your immediate family members as well as in-laws). If you are sharing the cost of your loved one’s care facility with other family members, you may be eligible for the “multiple support agreement” deduction, as long as you are paying at least 10 percent of the cost of one year of support. Everyone involved in the payments must agree on and sign a Multiple Support Declaration in order for you to claim this deduction.
Special aid for Veterans
If your loved one is a veteran or a spouse of a veteran, it’s also helpful to explore the “improved pension” options that can help supplement the cost of care, tax free. The Aid & Attendance benefit is a little-known but very helpful improved pension benefit that provides additional funds to help qualifying veterans or their spouses pay for ongoing care, either at home or in a facility. The benefit is income-based, but can provide $1,788 per month to a veteran or $1,149 per month to a surviving spouse. In order to apply for the improved pension, you’ll need to collect several documents, so the sooner you can start the process the better.
Caregiving for your senior loved one is a noble calling, although it can often be demanding emotionally and financially. Being able to deduct certain expenses can be a small but helpful benefit each year, so it’s worth exploring and discussing with your CPA.
Written by Megan Hammons