Is the Expense of Senior Care Tax Deductible? Demystifying Tax Laws

Is the Expense of Senior Care Tax Deductible? Demystifying Tax Laws

Please note: The following information should not be considered as legal or tax advice. Tax laws are subject to change, and it’s always recommended to consult with a CPA for decisions related to your tax liability or income tax returns.

By Joseph Spada, LPN.

Typically, eligible long-term care expenses can be deducted from your taxes. In simple terms, the cost of these services can be subtracted from your gross income as an itemized deduction. However, this is possible only if your total unreimbursed medical expenses exceed 7.5% of your adjusted gross income.

To put it in perspective, if you pay for your long-term care from your pocket, aren’t compensated by insurance, and the cost surpasses 7.5% of your adjusted gross income, you may be able to deduct the expense.

Understanding Long-Term Care Services

Long-term care services encompass a wide range of activities, including necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services. They also cover maintenance or personal care services required by a chronically ill individual under a prescribed plan of care from a licensed health care practitioner.

Defining ‘Chronically Ill’

The term ‘chronically ill’ refers to individuals certified by a licensed healthcare practitioner in the last twelve months, who:

  • Can’t perform at least two Activities of Daily Living (ADLs, such as eating, toileting, transferring, bathing, dressing, and continence) without substantial assistance, for at least ninety days due to loss of functional capacity,
  • Have a similar level of disability as determined under specific regulations,
  • Require substantial supervision to protect them from threats to health and safety due to severe cognitive impairment.

To understand this better, let’s delve deeper into some related terms.

Who are Licensed Healthcare Practitioners?

A licensed health care practitioner can be a physician, registered nurse, licensed social worker, or another individual fulfilling the requirements prescribed by the Secretary of the Treasury.

The Health Insurance Portability and Accountability Act (HIPPA) clarified which expenditures for home care could be deducted as medical expenses. Today, this includes maintenance or personal care services – the type of care provided in Adult Family Homes. For instance, in Washington State, such homes must have a written care plan, an essential provision for tax deductibility.

Maintenance and Personal Care Services: An Overview.

Maintenance and personal care services primarily aim to assist chronically ill individuals with their disabilities. They include meal preparation, household cleaning, and similar services that a chronically ill person cannot perform. Importantly, these services don’t have to be performed in a nursing home or by a licensed medical professional. If the services are provided under a prescribed plan of care, the cost of a care attendant qualifies.

Dealing with Cognitive Impairment

Individuals who are physically able but cognitively impaired are treated similarly to those who cannot perform at least two activities of daily living without substantial assistance. The severity of cognitive impairment is typically evaluated through a 30-point questionnaire called MMSE (Mini-Mental State Examination).

Senior Care in Nursing Homes and Long-Term Care Facilities

Previously, payments to Nursing Homes were considered medical expenses if medical care was the primary reason for the stay. A change in the IRS code now includes qualified long-term care within the definition of “medical care.” This means that payments to long-term care facilities can be considered medical expenses, provided the individual meets the ADL or cognitive impairment requirements under a prescribed care plan.

Senior Care for Non-Chronically Ill Individuals

For residents who are not chronically ill, fees paid to retirement communities and Assisted Living facilities can be tax-deductible medical expenses, as long as they are attributable to medical care. This deduction applies to entrance or initiation fees if a portion of the fee is for medical services. The facility is responsible for determining the portion of fees allocated to medical care.

Assisting Your Spouse or Parent Financially?

Expenses can also be tax-deductible if you are providing financial assistance to an elderly parent. According to the IRS:

To claim someone as a dependent, two key qualifications must be met:

  • Firstly, the tax filer (usually a family member) must provide at least half of the dependent’s financial support for the year,
  • Secondly, the dependent must be related or have lived with the tax filer for one full year.

There is a noteworthy exception: if multiple family members together contribute 50% of the dependent’s support, the family can select one member to claim the elderly or sick relative as a dependent. This process is referred to as creating a “multiple support declaration.”

Remember, this interpretation is based on discussions with an accountant, reading the law, and Congressional Conference Committee reports. It’s always advisable to check with your tax advisor.