Is Memory Care Tax Deductible?
If your loved one is receiving memory care for Alzheimer’s or dementia, part or all of the cost of their care may qualify for a medical expense tax deduction. Memory care falls under the category of “long-term care services,” which are deductible expenses under the 1996 Health Insurance Portability and Accountability Act (HIPAA).
The cost of memory care should be added to a sum total of all of an individual’s qualifying medical expenses. The portion of this total that can be deducted from taxes is that which makes up over 7.5% of an their adjusted gross income.
Requirements for Memory Care to be Tax Deductible
A person must meet the following requirements for their memory care expenses to be tax deductible:
They must be considered “chronically ill.” This is defined as meeting one of the following qualifications:
- 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.
- Their care must be provided by a licensed medical professional, under a specified plan of care. Care plans are written outlines of the daily services an individual receives, and they often include assistance with the activities of daily living. For Alzheimer’s and dementia patients, care plans may be administered by an in-home memory care provider or at a memory care community.
If someone receives care for Alzheimer’s or dementia, it is highly likely that they meet the above requirements. However, it is important to contact both a tax advisor and their care provider to confirm that this is the case.
What Percentage of Memory Care is Tax Deductible?
At a memory care community, the percentage of entrance fees and monthly service fees that qualify as tax deductible medical expenses depends on how they itemize charges. Some communities differentiate which charges are for housing and meals and which charges are for care, in which case only the latter qualify. Other communities specify that all fees paid by their residents go toward care and therefore qualify as medical expenses. It’s important that families speak with the finance office at their loved one’s community, as well as a tax advisor, to determine the appropriate amount to deduct.
For in-home memory care services, families can usually deduct the entire amount of their loved one’s care, since housing and meal costs are not included in the fees. However, families should speak with both the home care agency and their tax advisor to confirm this.
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 memory care 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 7.5% 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 * 0.075)
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 * 0.075) = $25,000 – $6,000 = $19,000
In this example, the medical expense deduction you can claim on your taxes is $19,000.
What Other Medical Expenses Are Tax Deductible?
In addition to memory care 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 memory care or any other medical expense tax deductions, visit irs.gov or consult with a tax professional in your area.
Article updated January, 2020.The above article provides information on using the medical expense tax deduction for memory care. It should function as a starting point for your research but not be substituted for direct advice from a tax professional.