For people who are chronically ill, the medical expense of everything from memory care to assisted living can be difficult to manage. But did you know that some of the expenses associated with long term care may be tax deductible?
It might seem like a lot of effort, but depending on your situation, exploring what’s possible can prove to be worth it. However, you should be mindful that angling for tax deductions can be complicated, so be sure to consult a tax professional to make sure that you are in compliance with the appropriate IRS rules and regulations.
Is Dementia Care Tax Deductible?
If someone is chronically ill with dementia, an impairment such as Alzheimer’s disease, or another form of severe cognitive impairment, the expenses can quickly add up. Claiming tax deductions can help defray the costs.
Under the Health Insurance Portability and Accountability Act (HIPAA), long term care is considered a deductible medical expense. The two criteria for qualified long term care are:
- Patients are unable to perform at least two out of the six activities of daily living (eating, dressing, bathing, transferring, toileting, and continence), indicating that they are “chronically ill.”
- Patients’ care must be provided by a licensed health care professional under a specific care plan.
Adjusted Gross Income
When it comes to how much people seeking long term care or with severe cognitive impairment can deduct from their taxes, there are two income thresholds to consider.
- If you are seeking to deduct medical expenses, you might be able to deduct anything that exceeds 10% of your income.
- If you are seeking to deduct the costs of a nursing home or assisted living facility, you might be able to deduct anything that exceeds 7.5% of your income.
Deducting Medical Expenses
Health insurance plans don’t cover every medical expense, and that means patients and caregivers often have to cover the expenses out of pocket. These expenses might be tax deductible whether you pay them for yourself, a spouse, or a parent.
If your medical expenses exceed 10% of your adjusted gross income, everything over that amount can be deducted from your taxes. Qualifying expenses can include:
- Diagnosis fees
- Disease prevention fees
- Disease cure fees
- Hospital services
- Some long term care and nursing services
You might also be able to deduct long term care insurance, since premiums for this type of coverage are considered a medical expense. Not all long term care insurance premiums qualify, however. The terms of these deductions vary by state, but generally speaking, policies have to be renewed for fixed periods of time, they do not provide “Cash Surrender Value,” and they do not cover things that would otherwise be covered under Medicare.
Here are some more helpful pointers for deducting the medical expense of memory care or Alzheimer’s care:
- If you are a spouse or relative of someone in an assisted living facility, nursing home, or rehabilitation center, claim them as a dependent.
- Deduct fees for help — and keep all receipts to show that you meet the minimum threshold for having medical care expenses deducted.
- Itemize every medical expense.
- Use a Flexible Spending Account (FSA) to take advantage of the pre-taxed status of those dollars.
Deducting Assisted Living
In the United States alone, there are more than a million older adults who are residents of an assisted living community.
The tax terms of assisted living and Alzheimer’s care are slightly different. In addition to the activities of daily living (ADL) and care plan requirements that qualify patients for long term care, assisted living residents must have been certified by a licensed health care practitioner as chronically ill within the previous 12 months in order for their medical expenses to be tax deductible.
They must also be a part of a prescribed care plan. Care plans — whether designed to manage Alzheimer’s disease or a progressive form of cancer — do not have to be created by the same licensed health care practitioner who certified their chronic illness. Many facilities have staff on hand who are qualified to design and carry out the necessary personal care services to ensure the health and safety of the patient.
Most things that qualify as deductible medical expenses also apply in an assisted living facility. The distinguishing factor is the reason that someone is living in a nursing home or assisted living facility in the first place. Meals and lodging may be tax deductible if someone’s primary reason for assisted living is to receive medical care. If the reasons for seeking out a nursing home are more personal or preferential, you may not be able to deduct medical expenses like meals and lodging.
Everyone’s personal care needs are different, and so too are the associated care costs. Assuming all qualifications for long term care are met, however, you might be able to deduct any expenses that exceed 7.5% of your gross adjustable income.
Tax Credits and Deductions for Caregivers
Not every family member is capable of caring for their loved one with a chronic condition, whether it’s because they have to work, they live too far away, or any other reason. Oftentimes, that means they need to hire someone to manage that person’s medical care. If this is the case, a caregiver might qualify for the Child and Dependent Care credit on their federal tax return — which can allow them to deduct up to 35% of dependent care expenses paid to your medical care provider.
The eligibility requirements are as follows:
- The caregiver must live with the person they are claiming as a dependent for more than six months.
- The caregiver must file as single, head of household, married filing jointly, or as a qualifying widow(er) with a dependent child.
- The caregiver must have earned some form of taxable income.
Note that hiring someone for long term care services may make you that person’s employer, and this would obligate you to withhold a Medicare tax, Social Security tax, and federal unemployment tax.
Different states have their own credits that build on top of this federal credit, so be sure to look into what might be available in your area.
If it is not necessary to hire someone to provide long term care, the following items may be deductible:
- Essential transportation
- The cost of medical care — including nursing
- Physical therapy and other forms on in-home care
- Personal items like specialized food or disposable underwear
- Assisted living or nursing home care
- Home modifications that improve accessibility
Managing the health and safety of a person with a chronic illness can be extremely expensive. To help soften the blow of the costs associated with long term care services, it is important to understand how taxes factor into the picture. Knowing how to maximize your tax return with qualifying deductions can help you make sure you or your loved one is able to afford the care that they need. If you may be able to take advantage of long term care insurance or another form of deduction, you will be well on your way to shoring up the finances for your plan of care.
If you or someone you know are in need of medical services or house calls, Keystone Health can help your family manage elder care and maintain a good quality of life. Reach out to us today to learn more about what we can do for you.