When we talk about assisted living, we most often think about homes and communities that are set up for that purpose. According to figures provided by the American Health Care Association and the National Center for Assisted Living (AHCA/NCAL), there are approximately 28,900 assisted living communities with nearly 1 million licensed beds in the United States today. Although most residents of assisted living communities are elderly, younger adults and children with mental or physical disabilities may also live in facilities such as these. But this is just the tip of the iceberg, because not everyone who needs help with the daily activities of life lives in a dedicated facility. There are many people who receive regular care from a medical professional in their own home or in the home of a relative.
The end result is that hundreds of billions of dollars are spent every year on assisted living expenses by individuals acting on their own behalf or for their loved ones. And as the baby boomer generation continues to grow older, the amounts spent on taking care of them will continue to grow exponentially year by year.
Why am I telling you all of this? Because if you’re not spending any of your hard-earned money on assisted living expenses right now, chances are you will be doing so sooner or later. And I want you to listen up, because you can very likely deduct your out-of-pocket expenses on your Form 1040 tax return.
But, as always, there are some conditions that have to be met. Money you spent on assisted living – beyond whatever the insurance company reimbursed you for – can be deducted as a medical expense if all three of these statements are true:
- The expenses were for a patient who was either yourself, your spouse, or your dependent.
- The patient received medical or nursing care.
- On your tax return, you are able to itemize your expenses using Schedule A, Itemized Deductions.
Now, let me explain what each of those statements mean.
Who was the patient?
You can deduct medical expenses you paid for yourself, but you can also deduct expenses you paid for someone who was your spouse or your dependent at the time when the services were provided (if paid immediately) or when you paid for them later. A dependent can be either your
qualifying child or a
qualifying relative for tax purposes and must be either a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico. More information can be found
here on the IRS website or in this
blog post, but here is also a brief summary for dependents:
A qualifying child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them. The person claimed must have lived with you more than half the year and be younger than 19 (or 24, if a full-time student) at the end of the year. Also, the person must not have provided more than half of the cost of their own support for the year.
A qualifying relative may be any age but cannot be someone who meets the definition of a qualifying child. In addition to the relationships listed above, the person can be your father, mother, or an ancestor or sibling of either of them; or your stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. In fact, it can be any other person (other than your spouse) who lived with you all year as a member of your household so long as your relationship didn’t violate local law. And you must have provided more than half of that person’s support for the year.
What type of care is counted?
To start with, all unreimbursed costs related to medical or nursing care provided to the patient by the assisted living facility are deductible. If the main purpose of the patient being in the facility was to receive this care, then the costs of meals and lodging provided by the facility are also deductible. But if the main reason for the patient’s stay in the facility was more for personal purposes than medical, then only the cost of the medical and nursing care provided is deductible.
Unreimbursed costs for medical and nursing care received by a patient in their own home or other location outside of an assisted living facility are also deductible.
Schedule What?
If you have passed the first two tests and have eligible expenses for an eligible patient, then the final step is to claim them on your tax return. These expenses are regarded as “Unreimbursed Medical Expenses” and can only be claimed on a form called Schedule A, Itemized Deductions that you would attach to your Form 1040, Individual Income Tax Return. But the problem is that not every taxpayer can qualify to use Schedule A.
Here is the rule in a nutshell: If you filed jointly with your spouse for 2021 and the total of the following expenses added up to more than $25,100, you can file Schedule A and claim all medical expenses (including assisted living expenses) you paid that were greater than 7.5% of your adjusted gross income (AGI). The expenses included in the Schedule A calculation are:
- The first $10,000 of state and local income, real estate, and property taxes you paid for the year
- Mortgage interest paid on your primary residence and one other property, up to specific limitations
- Charitable contributions made
- Unreimbursed medical expenses in excess of 7.5% of your AGI
If you are using the filing status of Single for 2021, your threshold for Schedule A is reduced to $12,550.
But the good news here is that your tax preparer or any tax software you use will do this Schedule A calculation for you. However, the key to all of this is making sure you keep complete and accurate records of all of your expenses that may help you qualify for Schedule A. You may, indeed, be able to receive the benefit of deducting those assisted living expenses, but you will never know unless you keep good records and receipts in other areas.