Did you know that as of 2024, approximately 800,000 people reside in assisted living communities? According to the Genworth Cost of Care Survey (2023), assisted living costs an average of $5,350 monthly ($64,200 annually), and this cost may increase based on many factors that influence what residents will pay.
With the rising costs of assisted living, many families are looking for ways to manage the financial burden. If you are wondering if assisted living is tax deductible or if there are any other ways to relieve families of the financial burden of looking after their loved ones, read on.
Long-term medical care expenses qualify for tax deductions but it is important to know what individuals are eligible for. Let’s look at the key factors related to the tax deductibility of assisted living expenses.
Eligibility for Tax Deductions
To qualify for assisted living tax deductions, you must meet specific criteria set by the IRS. These criteria include the requirement that the expenses incurred for assisted living services must be for medical care. This means that if the main reason for residing in an assisted living facility is for medical purposes, the expenses may be eligible for tax deductions.
Keep in mind that only the portion of the assisted living costs that are reasonable and necessary for medical care is subject to tax deductions. Keep detailed records and receipts of all the expenses related to assisted living to support your deduction claims.
When considering this option, scheduling a free consultation with a tax attorney might be a good idea. A tax attorney knows the requirements for you to be eligible; an attorney can also help you in regard to filling up necessary documents.
Types of Assisted Living Expenses
When considering tax deductions for assisted living, you must understand the types of expenses that may qualify for potential savings and also make sure that you are still compliant with the IRS regulations.
The expenses that can typically be deducted include:
- Monthly fees for the assisted living facility.
- Costs related to meals provided by the facility.
- Expenses for assistance with activities of daily living such as bathing and dressing.
- Fees for medical services provided on-site.
- Expenses related to transportation for medical purposes could also be eligible for deductions.
- Parking fees and tolls incurred for medical appointments or services.
Limitations and Qualifications
One of the main drawbacks is that you can only deduct medical expenses that are higher than 7.5% of your adjusted gross income (AGI). If your annual gross income is $50,000, you have the option to deduct assisted living expenses that are higher than $3,750.
Services for personal reasons or unrelated to medical care can’t be deducted. Expenses reimbursed by insurance or paid through a flexible spending account aren’t eligible for deduction.
How to Claim Tax Deductions
You can claim tax deductions for assisted living expenses by carefully documenting and itemizing your eligible medical costs.
Keep detailed records of all payments and statements that clearly show the dates and amounts of the expenses incurred. Specifically for services related to assisted living, such as medical care, meals, and lodging.
When itemizing your deductions on your tax return, you’ll need to use Form 1040 and Schedule A. Within Schedule A, look for the section on medical expenses. Here, you can list all the qualifying costs, including those related to assisted living.
Tips For Maximizing Tax Benefits
If you want to make the most of your tax benefits for assisted living expenses, it is worth looking into other deductions that you may be eligible for, in addition to medical costs.
One option is to look into the deduction for home modifications made for medical reasons. These expenses might be tax-deductible if you’ve updated your home to accommodate specific medical needs.
Another one is deduction for long-term care insurance premiums. If you pay premiums for a qualified long-term care insurance policy, you may be able to deduct certain parts of these costs.
Conclusion
Dealing with the financial aspects of assisted living can be challenging, but understanding the potential tax deductions available can provide significant relief. Remember to consult with a tax attorney to ensure you are maximizing your deductions and complying with all regulations.