The cost of living is rising, and financial decisions are becoming increasingly difficult to make as people weigh the advantages against the cost. As families begin to consider a move of their loved ones to an assisted living community, they often wonder what the financial implications of such a decision will be. However, the up front cost is not always what it seems, especially when you consider what is and is not tax deductible.
When touring a senior living community, people commonly ask,
“Will the Costs of Assisted Living Be Tax Deductible?”
The short answer is, “Yes.” Many assisted living expenses are tax deductible. However, there are certain qualifications that must first be met. Additionally, only specific expenses are actually tax deductible. Finally, it is always important to compare your itemized tax deduction with the standard tax deduction and consult a tax professional before making a final decision on whether or not you should deduct senior living expenses.
What qualifications must be met to deduct senior living expenses?
In order for your senior living expenses to be considered tax deductible, they must be fall under the umbrella of “medical care.” This means that as long as a senior is living in a senior living community where they are receiving medical care, then the majority of those expenses can be deducted from your taxes.
Additionally, in order for the care to fall under the “medical care” umbrella, the senior must be unable to perform two or more Activities of Daily Living and require “substantial” help to complete those activities for 90 days or more. Activities of Daily Living are just that: eating, bathing, toileting, dressing, cooking, cleaning, medicinal doses, mobility (including) transportation), and any other activity that is required for daily living. Seniors must qualify for help in at least two of these categories and have some sort of care plan (created by a licensed healthcare provider) that details their daily care for their senior living communities to be considered medically necessary for tax deductions. Most qualified senior living communities offer these care plans, created by professionals, when seniors are first accepted into the senior care communities.
In a similar vein, if a senior is technically able to perform the Activities of Daily Living but requires constant supervision due to cognitive impairment like Alzheimer’s Disease, the senior’s care costs will also be tax deductible.
Finally, and perhaps most importantly, all of these medical care expenses must exceed 7.5% of the taxpayer’s income. Typically, children of seniors qualify for these same deductions as long as they are covering the costs of at least 50% of their parent’s care.
What senior living expenses are tax deductible?
All expenses that are connected to the senior’s medical care are considered tax deductible. This includes the obvious items like nursing services, tending to the senior’s physical health and providing medication, as well as less obvious items, like food and housing costs, as long as the senior is living in the provided housing to receive medical care.
Other costs that fall into the “maintenance” category, like laundry and housekeeping services, are harder to qualify. Typically, they do not count unless they are performed for seniors living with cognitive impairment in order to ensure the senior’s safety and well-being.
How do I know if I should do a standard deduction or an itemized tax deduction?
It’s important to understand the difference between a standard deduction, which lowers a person’s taxable income by a fixed amount set by the government, and an itemized deduction, which allows a person to add up all deductible costs and use that to lower their taxable income. Typically, itemized deductions are more complicated and take longer. However, they can lower taxable income significantly. Not everyone is entitled to itemize their deductions, so be sure you qualify if you are considering itemizing you deductions.
For 2022, the standard deduction is $25,900 for joint filers, $19,400 for heads of household, and $12,950 for single filers and those married filing separately. You’ll want to make sure your itemized deductions would allow you to deduct more than these amounts, depending on your status, if you decide to take the itemized deduction, or else you will be doing more work for less savings in the long run. Be sure to talk to a tax professional about your options, especially if this is your first time walking through this process.
If you and your loved one are interested in choosing a senior living community but are uncertain about the financial and tax implications, please reach out! Here at Morningside, we offer guided expert consultations to walk you through each step of the process. Give us a call or visit us online to schedule a tour today. We would love to help you!