Did you know that assisted living is a tax deduction eligible expense? Many people don’t realize this and therefore don’t take advantage of the tax deductions available to them. In this article, we will discuss assisted living and tax deduction eligibility in detail.

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Are Assisted Living Expenses Tax Deductible?

Yes, assisted living expenses are tax-deductible. The IRS considers assisted living to be a medical expense, and as such, it is eligible for the medical expense deduction. This deduction can be taken on your federal income taxes.

You can deduct assisted living expenses if you or your spouse is a qualified individual. A qualified individual is someone who is:

  • permanently and totally disabled
  • has been diagnosed with a chronic illness or disease

If you are a qualified individual, you can deduct the cost of assisted living as a medical expense. The amount you can deduct depends on your income and filing status.

There are some limitations to the deduction, however. First, you can only deduct expenses that exceed 7.5% of your adjusted gross income. Second, you can only deduct the part of your expenses that are not covered by insurance or other reimbursements.

Finally, you can only deduct expenses for care that is considered medically necessary. So, if you’re paying for luxury services or amenities that are not considered medically necessary, those costs will not be tax-deductible. 

If you are considering assisted living, be sure to talk to your tax advisor about whether you may be eligible for the medical expense deduction. With careful planning, you can minimize your taxes and maximize your retirement income.

What Is The Medical Expense Tax Deduction Formula?

The medical expense tax deduction is calculated by subtracting a certain percentage of your adjusted gross income from the total amount of your medical expenses.

The formula goes like this:

Medical expense tax deduction = Sum of medical expenses paid – (Adjusted gross income x Threshold (0.075))

For example, let’s say your adjusted gross income is $50,000 and you have $12,000 in medical expenses. The threshold for 2019 is set at 0.075, or 75%.

This means that your medical expenses must exceed $3,750 (75% of $50,000) in order for you to be eligible for a deduction. In this case, you would be able to deduct $8,400 ($12,000 – $3,750 = $8,400).

What Assisted Living Expenses are Tax Deductible?

Senior Calculating ExpensesAssisted living expenses that are tax-deductible include the cost of lodging, meals, and medical care. You can also deduct the cost of transportation to and from medical appointments, as well as any expenses for personal care services.

Expenses that are not tax-deductible include the cost of recreation and entertainment, as well as any costs for personal items such as clothing and laundry. To be eligible for the medical expense deduction, your assisted living expenses must meet two criteria:

  • The expenses must be incurred for the primary purpose of medical or dental care.
  • The expenses must not be reimbursed by insurance or other sources.

If you or your spouse is age 65 or older, you can deduct eligible assisted living expenses even if they do not meet the criteria above. To claim the deduction, you must itemize your deductions on Schedule A of your federal income tax return.

Requirements for Assisted Living Facilities to be Tax Deductible

As mentioned above, in order for your assisted living expenses to be tax-deductible, they must meet two requirements:

  • The expenses must be incurred for the primary purpose of medical or dental care.

This is an important distinction, as many assisted living facilities provide services that are not primarily for medical or dental care, such as meals, laundry, and housekeeping. While these services may be important to you or your loved one, they do not meet the criteria for tax deductibility.

  • The expenses must not be reimbursed by insurance or other sources.

This is also an important distinction, as many assisted living facilities accept private insurance and/or Medicaid. If your assisted living expenses are reimbursed by either of these sources, they are not eligible for tax deduction anymore.

How Does a Tax Deduction Help?

The purpose of the tax deduction is to help offset the cost of long-term care. Long-term care is defined as a type of care that is required for an extended period. It can be custodial, which helps with activities of daily living such as bathing and dressing, or it can be skilled, which helps with medical needs such as wound care.

To be eligible for the tax deduction, you must have paid for long-term care services for yourself, your spouse, or a dependent. You can only deduct the amount of your expenses that exceed a certain percentage of your adjusted gross income.

What Part Of Assisted Living Payments Are Tax-Deductible?

Now that we’ve answered the question, “is assisted living tax-deductible?” it’s time to take a look at what part of your assisted living payments may be eligible for a deduction.

As we mentioned earlier, in order for any of your assisted living expenses to be considered tax-deductible medical expenses, they must exceed the IRS’s threshold of 0.075 or 75%. So, if your total medical expenses are $50,000, only expenses exceeding $3,750 would be eligible for a deduction.

This might include:

  • The cost of care provided by an assisted living facility
  • In-home care services
  • Transportation costs related to medical appointments
  • Prescription medication

Generally, only the medical expenses that you pay for yourself, your spouse, or a dependent are eligible for the deduction. This is because the IRS views these expenses as necessary and, as a result, they fall under the umbrella of tax-deductible medical expenses.

Final Thoughts

Assisted living expenses are tax-deductible, but there are certain conditions that must be met in order for the deduction to be eligible. It’s important to speak with a tax professional to ensure that you are taking advantage of all the deductions for which you are eligible. This way, you can maximize your tax return and keep more of your hard-earned money.