Tax Benefits of Senior Living

What Tax Deductions Apply to Senior Living?

The medical expense deduction may allow taxpayers who itemize their deductions to deduct qualified, unreimbursed medical expenses that exceed 7.5% of adjusted gross income (AGI). Eligible expenses can include certain costs for medical care, long-term care services, nursing home care, and other qualified healthcare expenses. Keep records and receipts for eligible expenses and any reimbursements received.

A family member who pays for qualified medical or care expenses on behalf of an eligible relative may be able to include those expenses as medical expenses on their tax return if the relative qualifies as a dependent under IRS rules. Dependency requirements can vary based on the individual’s circumstances, so taxpayers should review current IRS guidance before claiming the deduction.

How Does the Medical Expense Deduction Work?

Active Adult and Independent Living
There is no general federal tax deduction specifically for living in an active adult or independent living community. However, certain unreimbursed medical or home care expenses may qualify as medical expenses if they meet IRS requirements. Depending on the circumstances, eligible services may include nursing care, physical therapy, occupational therapy, speech therapy, or certain home health services.

Assisted Living
Some assisted living and memory care expenses may qualify as deductible medical expenses when IRS requirements are met. Depending on the resident’s circumstances, qualified long-term care services and certain costs associated with assisted living or memory care may be deductible if the individual is certified as chronically ill and has a prescribed plan of care.

The deductible amount depends on the services provided and other tax requirements. Keep documentation of qualifying expenses, reimbursements, and the resident’s plan of care.

Skilled Nursing Facilities/Nursing Homes
Qualified nursing home expenses may be deductible as medical expenses when the primary reason for the resident’s stay is medical care. If a person is in a nursing home primarily for medical care, the cost of medical care, meals, and lodging may qualify. If the primary reason for the stay is personal rather than medical, generally only the portion attributable to medical care may be deductible.

Continuing Care Retirement Communities (CCRCs)
Also known as life plan communities, continuing care retirement communities (link to CCRC landing) generally offer independent living, assisted living, and skilled nursing care (link to respective landing pages) on the same campus. At many CCRCs you pay a one-time entrance fee and then monthly fees based on the size of your residence and the number of occupants. Some entrance and monthly fees paid to a continuing care retirement community (CCRC) may qualify as medical expenses if the fees are allocable to qualified medical or long-term care services and IRS requirements are met. The deductible portion can vary based on the contract, services provided, and how the community allocates its fees.

What Qualifies as a Medical Expense

Other qualified medical expenses may also be deductible, whether you live in a senior living community or at home. Eligible expenses can include:

• Out-of-pocket costs for hospitalization, doctors, psychiatrists, podiatrists, or other medical services not covered by Medicare or other insurance.
• Dental care, prescriptions, copays, eyeglasses.
• Premiums for qualified long-term care insurance and health insurance premiums not paid with pre-tax dollars.
• If required for medical care, you may also be able to deduct the costs for housing, food, clothing, transportation to the doctor and some home modifications.
• Programs for weight loss, alcohol treatment or smoking cessation may be deductible if they’re part of a treatment for a specific disease. Wigs for hair loss due to medical treatments of conditions may also be deductible.

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Are Long-Term Care Expenses Tax Deductible?

Certain unreimbursed qualified long-term care expenses may qualify as medical expenses for tax purposes. Qualified long-term care insurance premiums may also be included as medical expenses up to annual IRS limits, which vary by the insured person’s age.