Tax Deductions for Assisted Living Costs

Assisted living facility costs continue to rise every year. The median annual cost of a private bedroom in an assisted living facility in the United States is upwards of $50,000.

But did you know some of those costs may be tax deductible? Medical expenses are deductible if the expenses are more than 7.5 percent of your adjusted gross income. Note that some long-term care expenses may also count as medical expenses.

In order for assisted living expenses to be tax deductible, the resident must:

• Be considered chronically ill.
  
  This means a doctor or nurse has certified that the resident either:
   
  • cannot perform at least two activities of daily living (ADLs), such as eating, toileting, transferring, bath, dressing, or continence; or
  • requires supervision due to a cognitive impairment (such as Alzheimer's disease or another form of dementia).
• Be receiving personal care services according to a plan of care prescribed by a licensed health care provider.
  
  This means a doctor, nurse, or social worker must prepare a plan outlining the specific daily services the resident will receive. Though not required by law, most assisted living facilities prepare care plans for their residents.

Are Room and Board Living Costs Deductible?

Generally, only the medical component of assisted living costs is deductible, and ordinary living costs like room and board are not. Room and board for a facility may be considered part of the medical expenses if:

• The resident is chronically ill and
• The resident is in the facility primarily for medical care and
• The care they receive is being performed according to a certified care plan

Then the room and board may be deductible, just as it would be in a hospital.

If the assisted living resident is receiving custodial care (not medical care), the costs are deductible only to a limited extent. Custodial care can include assisting a resident with personal care needs, such as dressing, bathing, preparing meals, or doing laundry. A medical license is not required to provide this type of care.

In any case, the expenses are not deductible if they are reimbursed by insurance or any other programs.

Residents who are not chronically ill may still deduct the portion of their expenses that are attributed to medical care. (Note that entrance fees are among the items included in the definition of medical expenses.) The assisted living facility should provide residents with information regarding what portion of fees can be attributed to medical costs.

Can an Assisted Living Facility Resident's Child Get a Tax Deduction?

In some circumstances, adult children may also get a tax deduction if their parents, in-laws, or other immediate family members:

• Live at an assisted living facility
• Qualify as their dependents
• Are US citizens or legal residents (or residents of Canada or Mexico)

The adult child also must pay for more than half of the family member's support for the year.

Multiple Support Agreements

When more than one individual is contributing to the family member’s support, they may consider setting up a multiple support agreement.

In a multiple support agreement, one person would not pay for more than half of the family member’s support. Instead, for example, two or more adult children could contribute to the costs. Together, their contributions would need to total more than 50 percent of the support costs for the year.

To get a tax deduction, one adult child must pay more than 10 percent of the resident’s support for the year. In this case, that child would not be paying more than half of their family member’s total support for the year. However, they may still be eligible for a tax deduction. All others who paid more than 10 percent must agree not to claim the resident as a dependent that year.

All those supporting the assisted living resident must agree on and sign a Multiple Support Declaration, which outlines these rules.

Additional Resources

Find more information on deducting medical expenses from your taxes. You may also find the following articles helpful:

• Assisted Living vs. Nursing Homes: What's the Difference?
• How to Evaluate an Assisted Living Facility
• Does Medicare Pay for Assisted Living?
• Deducting Long-Term Care Insurance Premiums

For further guidance, consult with a qualified elder law attorney in your area.