As tax season gets underway, I thought it would be a good time to review the question of long term care tax deductions.
The IRS allows deductions against your personal income tax for the costs associated with medical care. You must itemize these costs in order to qualify. And the total costs for the year must exceed 7.5% of your adjusted gross income in order for the deduction to kick in. (For 2020 this amount increases to 10%). IRS publication 502 provides a handy explanation and list of covered services and expenses.
If you (or your spouse or dependent) are in a nursing home, all of the cost is deductible.
This includes the portion for meals and lodging, as long as the principal reason for being there is to get medical care. The test for this is whether the nursing home resident needs assistance with two or more activities of daily living, or requires a protective environment due to severe cognitive impairment. (See our other blogs for explanations of “activities of daily living” and “severe cognitive impairment.”)
What about Long Term Care Tax Deductions at Assisted Living or Memory Care facilities?
All of these costs can also qualify if the resident is a chronically ill individual, and a licensed healthcare practitioner certifies (within the last 12 months), that the resident meets one of the two conditions above. The licensed healthcare practitioner can be any physician, registered professional nurse or licensed social worker.
There is also a requirement that the resident is being treated under a plan of care. This plan is developed by the care facility as part of their regular treatment protocol. If you cannot qualify for the deduction of the entire amount, you may still deduct the part attributable to medical expenses. Typically 30% to 40% of assisted-living facility costs are medical in nature.
How about long term care tax deductions continuing care communities? The life care fee or buy-in fee can be a deduction also. The part you may deduct is the amount allocated to medical care. The community can provide a statement to delineate how much is attributable to the cost of medical care.
What else can you deduct? If you have gotten beyond the 7.5% threshold, you should also list all amounts paid for insurance such as your Medicare deduction, Medicare supplement fees and Part D costs. Also a portion of long-term care insurance contracts may be deducted. For a taxpayer aged 71 or over, you may deduct $5270 in premiums for long-term care insurance. And don’t forget durable medical equipment, dental/tooth replacement, vision and hearing expenses. Always consult your tax preparer/CPA to maximize your deductions.