Is Assisted Living Tax Deductible?
If you or your loved one lives in an assisted living community, part or all of your assisted living costs may qualify for the medical expense tax deduction. According to the IRS, any qualifying medical expenses that make up more than 10% of an individual’s adjusted gross income can be deducted from taxes. The qualifying threshold was lowered from 10% to 7.5% for the tax years 2017 and 2018, but the most recent guidance suggests it will return to 10% for 2019.
Medical expenses generally make up at least a portion of the monthly service fees and entrance fees at assisted living communities. Tax filers should familiarize themselves with the requirements to qualify for the medical tax deduction and consider speaking to their tax advisors on how to calculate the percentage of assisted living costs that qualify as medical expenses.
Requirements for Assisted Living to be Tax Deductible
For assisted living expenses to be tax deductible, the resident must meet the following qualifications:
- The resident must be considered “chronically ill.” There are two ways for this qualification to be reached:
- They are unable to perform at least two activities of daily living (ADLs) on their own. The six activities of daily living are eating, dressing, bathing, transferring, toileting, and continence.
- They require substantial supervision due to a cognitive impairment such as Alzheimer’s or another form of dementia.
- The resident’s care is provided by a licensed medical professional, under a specified plan of care. Care plans are written outlines of the daily services a resident will receive. These generally include assistance with the activities of daily living.
If you or your loved one is in an assisted living community, there’s a good chance that these requirements have been met. However, it’s important to consult with your tax advisor before deducting any or all assisted living expenses. Non-medical expenses such as beauty salon and guest meals will never be deductible.
What Percentage of Assisted Living is Tax Deductible?
The Internal Revenue Code does not provide definitive guidance on a formal method for computing the deductible portion of monthly service fees and entrance fees. This means that the deductible portion or your fees will be determined by how your community itemizes charges. If part of your fee goes directly toward non-medical costs such as housing and meals, these expenses are not deductible. Your community should provide information about which portion of your charges are medical, and therefore how much of your assisted living fees are tax deductible.
Calculating Your Total Medical Expense Deduction
For the tax year 2019, any qualifying medical expenses that make up more than 10% of an individual’s adjusted gross income can be deducted.
To calculate your total medical expense tax deduction, start by determining your qualifying assisted living expenses per the above information. Then add that to the rest of your qualifying medical expenses for the tax year. Your medical expense deduction is the sum of all your qualifying medical expenses minus 10% of your adjusted gross income. If this number is negative, you do not qualify for a medical expense tax deduction.
Medical Expense Tax Deduction Formula
Medical Expense Tax Deduction = Sum of Qualifying Medical Expenses – (Adjusted Gross Income * 0.10)
For example, let’s say your total qualifying medical expenses are $25,000 and your adjusted gross income is $80,000. This is how you would calculate your deduction:
Medical Expense Tax Deduction = $25,000 – ($80,000 * 0.10) = $25,000 – $8,000 = $17,000
In this example, the medical expense deduction you can claim on your taxes is $17,000.
What Other Medical Expenses Are Tax Deductible?
In addition to assisted living costs, there are several other medical expenses that can qualify for a tax deduction. The IRS has published a comprehensive list of medical expenses that qualify for a deduction, as well as information about claiming a parent as a dependent.
For more information about assisted living or any other medical expense tax deductions, visit irs.gov or consult with a tax professional in your area.
This article has been updated for the tax year 2019.
