A Simple Guide to Senior Living Tax Deductions
Posted on March 25, 2016 by Steve Morgan
There are few things in life more confusing than the tax code. The annual ritual of tracking down credits and deductions to minimize tax liability can be tedious, and the rules seem to change year over year.
The availability of senior living tax deductions comes down to whether or not the services provided meet a medical need. The reason this is important is because in order to deduct the costs from taxable income, the IRS requires they qualify as medical expenses. These deductions can offset a portion of the cost of senior living for residents and their families.
In order to qualify for the deduction in a calendar year, a licensed healthcare provider has to certify within the past 12 months that the resident meets one of the following criteria:
- He or she is unable to perform at least two activities of daily living (ADL), such as eating, bathing, getting dressed or grooming for at least 90 days.
- He or she requires substantial supervision due to a cognitive impairment like Alzheimer’s disease or another form of dementia.
The medical expense deduction is available to residents who itemize deductions on their tax return and whereby the total of their medical expenses, less any reimbursement from insurance or other sources, exceeds 10% (7.5% for taxpayers 65 or older) of their adjusted gross income. If a resident qualifies as someone’s dependent, that person may use the medical expense deduction subject to the above limitations on their own return. A resident generally qualifies as a dependent if all of the following requirements are met:
- The resident is a child or relative of the taxpayer.
- The resident is a U.S. citizen or national – or a resident of the United States, Canada or Mexico.
- The taxpayer provided more than 50% of the resident’s financial support during the calendar year.
Even those who do not qualify for a 100% tax deduction may still be able to claim a portion of their fees for personal care services. Either way, a deduction can help residents and their families offset the costs of senior living services. To learn more, you may refer to IRS Publication 502. Read more about tax deductions, veteran benefits and find financial planning tools here.
NOTICE: Atria does not provide tax advice, and the information provided herein should not be considered as such. Due to the complexity of these rules and the fact that the deduction is based on each individual’s own circumstances, you should consult your tax advisor to determine how these rules may apply to you.