Is Assisted Living Tax Deductible? Tips on What You Can Claim in 2023.

Nearly 30% of Americans give financial assistance to their parents. While many people are familiar with claiming spouses and children as dependents, taxes get murkier when we are financially supporting other adults.

The IRS has many ways to define relationships, benefits, expenses and medical support that directly impacts caregivers finances.

We want to know if residences like assisted living or any of the associated care costs tax deductible in 2023.

What Care Expenses Are Tax Deductible?

According to the IRS website, if you, your spouse, or your dependent are in a nursing home for medical care, the entire nursing home cost (including meals and lodging) may be deductible as a medical expense.

What Makes Assisted Living Tax Deductible?

According to the 1996 Health Insurance Portability and Accountability Act (HIPAA), “long-term care services” may be tax deductible as an unreimbursed medical expense on Schedule A. Boom! Now what?

Assisted Living residents seeking tax deductions for their services must qualify as “chronically ill” by a licensed health care practitioner. It does not mean that they are dying, but they need help with two or more Activities of Daily Living (ADLs) like feeding themselves, transferring, bathing, dressing, and continence.

Not all assisted living costs can be deducted, but if an assisted living community is home, there are services and fees you may be able to deduct.

Want Professional Tax Help?

First out, if you want to consult with an expert to guide you through tax deductions, find professional (& affordable!) help at JustAnswer, H&R Block, or eFile. 

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What Is a Medical Expense?

What is a medical expense when it comes to assisted living?

First, assisted living and long-term care residences can be qualified as medical support. Check your contract and save all your receipts.

One of the most important things to know about deducting medical expenses is that you must itemize deductions on Schedule A to receive a tax benefit.  If medical or dental expenses equal 7.5% or more of your adjusted gross income, these expenses can be deducted from your 2022 taxes. 

The IRS has a helpful list to help you know which are considered qualifying medical expenses. Read the complete list here. Generally, these are costs associated with the diagnosis, cure, mitigation, treatment, or prevention of disease and for the purpose of affecting any part or function of the body.

Here's a short list of what the IRS deems a medical expense.

• Activities for older people with special needs
• Addiction programs
• Payments to medical practitioners (acupuncture, doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, etc.)
• Hospital and nursing home care
• Medical programs for doctor-diagnosed diseases, including obesity
• Insulin and prescription drugs
• Dentures, reading or prescription eyeglasses, contacts, hearing aids, crutches, wheelchairs, and service animals (woof!)
• Transportation costs to and from medical care

If you are a DIY tax person, you may enjoy this Interactive Tax Assistant hosted on the IRS website. It helps answer questions on medical expense deductions.

What Is a Qualifying Person?

The IRS defines relationship statuses very differently than on any dating app! A qualifying person just sounds bureaucratic. Let's get some answers.

From our friends at eFile: "A qualifying person qualifies you to file as head of household if they lived with you in your home for more than half the year, not counting temporary absences. Your parent, however, does not have to live with you to be a qualifying person."

The IRS table mentioned earlier includes language, examples, and a handy table to help you define your relationship status with others as it matters to THEM. If only dating had this table.

What Are Dependent Care Credits?

This tax credit does not require that your loved one lives with you to be considered dependent in certain circumstances. If you care for someone physically or mentally incapable of self-care, they depend on you. Hence they are dependents. You can find more from IRS here.

You can claim these IRS credits for someone who depends on you, and care can be provided in the household or outside the home. For the 2022 tax year, you can claim up to $3,000 in caregiving costs for one qualifying person and up to $6,000 for two or more.

Also, certain states have additional tax deductions or tax credits to provide financial relief to caregivers. For example, there are currently 23 states that have dependent care credits. These tax programs build on the federal tax credit, reducing the income taxes a family owes.

Is Assisted Living Tax Deductible?

Typically yes, some or parts of assisted living costs can receive a tax deduction when they meet the following qualifications:

• A care plan prescribed by a doctor, nurse, or social worker is in place.
• A licensed doctor, nurse, or health care practitioner has certified the resident as chronically ill.
• The resident demonstrated an inability to perform at least two ADLs independently, including bathing, toileting, and dressing.
• If a resident has dementia or Alzheimer’s and requires consistent supervision for 90 days or more. 

However, independent living expenses are only generally tax deductible if in a Life Plan community, also known as a continuing care retirement community.

The assisted living facility is responsible for providing residents with information on the portion of fees attributable to medical costs. You may also get living expense deductions depending on the medical care the resident receives. Check with your living facility; they can help you.

Caregivers—You Can Get Tax Credit

Since COVID, there has been a lot of interest in tax credits, not just for the support of children but also people who take care of adults who need additional care. So, while there is no “sandwich generation credit,” some tax benefits exist. 

You may get a tax deduction if you’re a qualifying relative who files a multiple support declaration, pays for at least half of the resident care, and has spent more than 10% of the costs. 

We spoke with our friends at H&R Block to help us understand the options for caregivers who support aging adults in their lives. 

Taxpayers may claim a dependent exemption for qualifying relatives they support, such as their parents and grown children. 

Dependent Care Credit Expenses

Dependent expenses are the important words here. For example, some costs qualify for a tax credit if they are associated with paying someone to help you care for a loved one. 

This applies if the dependent, the qualifying person, regularly spends at least eight hours daily in your home. 

In-Home Care Expenses

This includes expenses for cooking, light housework related to the qualifying individual’s care, and the act of care itself. 

You can learn more from the experts at H&R Block and see if the current dependent care credit will cover 20% to 35% of your qualified expenses.

Tax Deductions for Dementia Caregivers

There are many qualifying out-of-pocket medical expenses related to Alzheimer’s care. This is even true if you are not taking care of someone with Alzheimer’s disease at your home.

With a memory care residence specifically designed to care for people with Alzheimer’s disease and related dementia, the care, meals, and lodging is part of the complete care service plan, which means it is medical care.

There is typically also an 'entrance fee.' This fee covers the initial assessment and care plan development for the resident. That means this fee is medically necessary, is medical care, and is tax deductible.

If the person you care for cannot file their taxes due to mental or physical disability, and you’ll be filing in their stead, you use Form 2848 to be their qualified representative.

IRS Publication Links

We have found these IRS links very helpful. They do specific publications hosted on the IRS website:

• Medical and Dental Expenses - Publication 502
• Dependent claims - Publication 501 "Worksheet for Determining Support."
• Credit for the Elderly and Disabled - Publication 524
• Tax Guide for Seniors - Publication 554

Additional Resources

The AARP Foundation has a Tax-Aide Program and gives free, individualized tax preparation (for both state and federal tax returns) for low to moderate-income taxpayers. Free is an excellent word in our vocabulary.

Tax-Aide volunteers are nationwide and are trained and annually IRS-certified to ensure they understand the latest tax code additions and changes.

Long-Term Care Facility Types

Long-term care costs play a substantial role in your financial tax planning.

Assisted Living

Assisted living is residential living for disabled adults and aging people who need some personal care services. They get support with activities of daily living (ADLs) like housekeeping, meal prep, medication management, and even transportation, to name a few. 

There are several benefits to assisted living facilities (ALFs), including promoting independence, accessible emergency support, security, and opportunities to socialize. But, of course, all of this comes at a cost.

The 2020 Genworth Financial Cost of Care Survey found the average cost for assisted living is approximately $4,300/month, depending on where you live and the services you require. 

Memory Care Facility

Memory care housing is managed by highly-trained care providers who assist residents with Alzheimer’s or dementia. These are safe environments with structure, support, and specialized resources to help residents with dementia successfully navigate their day-to-day lives.

One unique feature of memory care is the level of security and supervision. People with dementia are prone to wandering, so additional security measures are needed to ensure the safety of residents. This can include monitoring bracelets, code-accessible elevators, and alarmed doors, entrances, and exits. 

So, how much does it cost? On average, people in the U.S. spend $6,935 per month on rent for memory care facilities. 

Skilled Nursing Facility

Skilled nursing facilities (SNFs) are great long-term care options for those who need support from medical professionals, such as doctors or nurses.

These facilities help people who need help with everyday activities and need physical, occupational, and speech therapy rehabilitation services. Due to the high level of medical care, security, and around-the-clock monitoring, nursing home care can range, on average, anywhere from $7,500-$9,000 per month. 

Independent Living

Independent living communities allow residents to lead a social lifestyle with the convenience of meal prep, housekeeping, and transportation services. 

There’s a wide range of independent living options. Depending on the community, residents can choose from a private room, apartment, townhome, or even standalone home. These residences cater to the 55+ crowd.

Because of the convenient amenities and resident independence, monthly costs can be higher than other living arrangements. However, independent living costs might be more cost-effective, depending on where you live, than assisted living due to the lack of medical care and personal care assistance.

If you want help with your taxes and want to save some cash while getting expert tax advice, please consult with the experts at H&R Block.

Note: This information is not intended as tax or legal advice. A taxpayer may be affected by exceptions to the general rules, so it’s crucial to consult a competent tax professional. Consult a tax professional to ensure you comply with IRS rules and fully understand all the deductions you are entitled to.

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