Navigating Tax Deductions for Assisted Living Costs

As tax season approaches, caregivers of loved ones residing in assisted living facilities often find themselves grappling with questions about deductibility. The IRS does indeed provide guidelines for deducting certain qualified long-term care costs as medical expenses. However, when it comes to the status of Assisted Living Facility (ALF) costs, clarity has been somewhat lacking. What do caregivers navigating  tax deductions for assisted living costs need to know?

Navigating tax deductions for assisted living costs

For residents of ALFs, qualified long-term care costs encompass “necessary rehabilitative services, maintenance, or personal care services” that are essential for chronically ill individuals and provided according to a designated plan of care by a licensed healthcare practitioner. But what exactly does this entail, and how can caregivers determine if their loved ones qualify for tax deductions?

Chronically ill individual criteria

To be eligible for tax deductions for assisted living costs, the resident must qualify as a chronically ill individual. This designation can be met if, within the past 12 months, a licensed healthcare practitioner certifies that the resident meets certain criteria:

1. Activities of Daily Living (ADLs): The resident must be unable to perform at least two ADLs without substantial assistance for a minimum of 90 days due to a loss of functional capacity. ADLs include essential tasks such as eating, toileting, transferring, bathing, and dressing.
2. Cognitive Impairment: Alternatively, the resident may require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Once the chronic illness requirement is satisfied, any assistance provided by the ALF that aids with ADLs or protects the resident from safety and health threats due to cognitive impairments qualifies as personal care services.

Who can certify?

The certification of chronic illness must be conducted within the preceding 12 months by a licensed care practitioner, such as a physician, registered nurse, or licensed social worker. This practitioner does not necessarily need to be an employee of the ALF, although they could be. It’s crucial that the practitioner personally examines the resident and provides a written opinion, ideally obtained prior to admission to the ALF.

While federal statutes mandate written care plans for nursing facilities, they are not required for ALFs, although many do prepare them. However, the plan of care, when prepared, must be done so by a licensed care practitioner and as soon after admission to the ALF as possible.

If all requirements are met

Then 100% of the ALF costs, including room and board, are deductible on the resident’s 1040, Schedule A, provided that they are not reimbursed by government benefits or insurance. For 2023 taxes, the resident can claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceed 7.5% of adjusted gross income.

When requirements are not met

In cases where the resident does not meet the IRS requirements for tax deductions for assisted living costs, they may still deduct the portion of ALF costs attributed to nursing services. Room and board and personal services costs would not be deductible in this scenario. Typically, 30% to 40% of ALF costs are attributed to nursing services.

Hurley Elder Care Law suggests you speak with your tax preparer to discuss these deductions. Please call us at 404-843-0121 with your elder law questions. We offer four convenient locations in Atlanta, Duluth, Peachtee City and Woodstock. Virtual meetings are also available.