I recently was shown a letter from an assisted living facility giving the opinion that my client could deduct 17% of the payments made to the facility the year before. They estimated that was the “medical” portion of the charges. Unfortunately this advice was apparently sent to all the residents of the assisted living.
I say unfortunately because for a large number of the residents, it is probably bad advice.
The IRS states that the expenses incurred in a Nursing Home, as well as other homes for the aged (i.e. assisted livings) are deductible as a medical expense when it is medically necessary to be there. There are some restrictions, however, so it is important to review the criteria for the full deduction.
In publication 502 (2014), the IRS says:
You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.
Do not include the cost of meals and lodging if the reason for being in the home is personal. You can, however, include in medical expenses the part of the cost that is for medical or nursing care.
What distinguishes whether being in the home is “personal” or not personal? Being a personal expense would mean that the expense is not deductible, and one might have to separate “personal” expenses from medical or nursing expenses.
Are my facility bills “Personal?”
It depends on why you are in the assisted living. What may help is how Congress defined “qualified long term care services” in the law. Congress said that “The term “medical care” means amounts paid— “for qualified long-term care services (as defined in section 7702B (c)).” 7702B (c) says that:
The term “qualified long-term care services” means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which—
(A) are required by a chronically ill individual, and
(B) are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
A chronically ill person is a person who has been certified by a licensed health practitioner as — (i) being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity, or (ii) having a level of disability similar to the level of disability described in clause (i), or (iii) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
So what does this all mean?
If you or your loved one is in a nursing home or assisted living because of a need of supervision from such a place, and a licensed health practitioner has indicated the need to be there to prevent injury due to a cognitive impairment or because hands on assistance with two activities of daily living is needed, then your entire bill, not just a percentage, is tax deductible on Schedule A of your tax return.
Remember that this deduction is subject to the 7% (or in some cases 10%) of your adjusted gross income (AGI) restriction.
If you are in an assisted living or nursing home out of personal choice, then room and board are not deductible. (individual medical services would still be deductible). However if you are there out of medical necessity, i.e. where a licensed health practitioner has indicated you need to be there due to your condition, then the entire amount paid to the facility is deductible, subject to the AGI restriction.
Most of my clients do not go to an assisted living if they don’t need to be there. Some people may choose to be in assisted living without the medical need, however often those with greater abilities will choose independent living.
If you or your accountant have any questions regarding this overview, please contact me. Without looking at your personal situation, you should not consider this to be legal advice, but a general discussion of the law.
Feel free to contact me if you have questions.