Most everyone is aware of the high cost of long term care, but many may not realize that it is typically not covered by Medicare or Medi-gap insurance. This expense can create a hardship for seniors and their families, but there is a way to get partial relief through an income tax deduction. Taxpayers who meet the IRS definition of "chronically ill" may be able to deduct all of their care expenses, including personal care. This means if they live in a retirement facility, even rent and meals could be deductible. In some cases, it is enough to offset all of their federal income tax.
The IRS defines chronically ill as someone who:
- is unable to perform at least two activities of daily living for at least 90 days within the past 12 months(activities of daily living are eating, toileting, transferring, bathing, dressing, continence)
- OR requires substantial supervision for protection from threats to health or safety due to severe cognitive impairment
Care must be provided pursuant to a written plan prescribed by a licensed healthcare practitioner, although the services do not have to be provided by a nurse. Obtain a copy of the care plan every year and keep with your tax records.
Here are some examples:
1) Daisy lived in her own home until January of 2015 when she fell playing badminton and broke her hip. After a stay in the hospital followed by rehab, she moved to Greenlawn Assisted Living in May of 2015. Before being released from rehab, the nurse wrote out a care plan stating Daisy now requires daily assistance with dressing, bathing, and cooking. On her 2015 federal income tax return, Daisy may be able to deduct all rent, meals and personal care services paid to Greenlawn.
2) Harley has been diagnosed with Alzheimer's disease and, according to his doctor, is in the severe stage. His children are concerned that he will wander at night and found an opening at Serene Place Dementia Care where he will have supervision 24-7. All of the payments made to Serene Place are likely to be tax deductible on Harley's federal income tax return.
Keep in mind medical expenses are deductible only if the taxpayer itemizes deductions and has medical expenses in excess of 7.5% of income (10% if younger than age 65). Also, there may still be state tax to pay since not all states allow a deduction for medical expenses.
This information is for general and educational use only and not intended as tax or legal advice. Tax situations vary significantly from person to person so it's always best to consult your own professional preparer for deductions that may apply to you.
Elizabeth Zeldes, CPA February 2016