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Are assisted living costs tax deductible?

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When seniors and their loved one are faced with the need for senior care, many of their concerns surround costs and how to limit them. We’ve explored why assisted living costs what it does, but knowing why doesn’t make it any easier for families.

One way to offset the cost of assisted living that isn’t often explored is tax deductions. The entire cost of assisted living isn’t tax deductible, but a portion of assisted living costs -- those associated with care -- are tax deductible, if certain conditions are met.

Let’s examine those conditions:

Care may be tax deductible. Housing and meals are not.

Under the overarching umbrella of assisted living, you are basically paying for three separate products: housing, meals, and care. The cost of housing and meals at assisted living is not tax deductible, but money spent on care may be.

Most assisted living providers itemize charges, and make clear what costs are for room and board, and what costs are for care. More specifically, they will indicate the type of care provided. This makes it easy to determine what costs are tax deductible, and to provide documentation for them.

On the other hand, some providers charge a single, inclusive rate, that encompasses room, board, and care, in one flat fee. Yet, for tax purposes, these providers can give you a breakdown that separates these costs into their respective buckets.

The resident must be considered chronically ill.

In order to deduct care costs from taxes, the senior must be considered chronically ill. To fall into this category, the senior must require assistance with at least two activities of daily living, such as eating, toileting, dressing, and bathing. Or, the senior must require supervision due to Alzheimer’s disease or another type of Dementia.

Care must be recommended by health care professional.

The resident’s doctor, or another licensed healthcare professional, must have recommended the care that’s being provided as part of a formal care plan. For example, if the resident’s doctor recommends assistance bathing and eating, these services may be deducted, while costs associated with help getting dressed can’t be deducted if they weren’t part of the care plan. That’s just one reason why it’s important for assisted living residents to work with their physicians if their needs change while they’re living assisted living.

Medical costs must be at least 7.5% of gross adjusted income.

This is a big one. The cost of care at assisted living counts as a medical cost, but it can only be deducted if total out-of-pocket medical costs are more than 7.5% of gross adjusted income. For instance, a senior with an annual gross adjusted income of $50,000 can only deduct assisted living care costs, and other out-of-pocket medical expenses, if those expenses are more than $3,750.

Again, these are all general rules on tax deducible submissions. For more information, visit your local senior living community.