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What Tax Deductions Are Available For Assisted Living Expenses in Tax Year 2021

If you or your loved one live in an assisted living community, part or all of your assisted living costs may qualify for the medical expense tax deduction.
What Tax Deductions Are Available For Assisted Living Expenses in Tax Year 2021

If you or your loved one live in an assisted living community, part or all of your assisted living costs may qualify for the medical expense tax deduction.

An assisted living facility is a long-term senior living option for older adults who need support with activities of daily living (ADLS), such as personal care, medication management, bathing, dressing, and toileting.

Rather than round-the-clock care though—like in a nursing home— assisted living can help fill in the gaps on an as-needed basis while still allowing the senior to enjoy an independent, engaging, and purposeful life!

According to the Genworth Care Survey, the average annual cost of an assisted living community is $54,000, which translates to just under $148.00 per day.

We know that there can be some sticker shock when viewing these numbers, but it’s important to understand the full scope of service that you receive for the cost. For example, these rates cover housing, personal care services, and overall support for yourself or someone who is precious to you—and you can’t put a price tag on that!

Fortunately though, you can still take part in some tax benefits that may be able to offset these costs.

Can You Write Off Assisted Living On Your Taxes?

Yes, if you live in an assisted living facility, you can generally write off a number of medical expenses included in the fees for assisted living as well as other qualified long-term care services on your taxes—with some qualifications and restrictions, of course.

In addition to this, the federal government also recognizes the financial burden on family members who help pay for assisted living for a loved one. That means that if you have a senior dependent in assisted living that is considered a dependent, then you may be able to take this deduction.

Or if you contribute more than 10% in support as part of a Multiple Support agreement that pays 50% or more of the resident’s support, you may also still be eligible for the deduction. However, it is important to note that only one of the parties involved in the Multiple Support Agreement can claim the loved one as a dependent and get the tax deduction.

The IRS usually considers a qualifying relative to be a father, mother, grandparent, mother-in-law, father-in-law, stepmother, or stepfather. Here is information about claiming a parent as a dependent.

What is the Medical Expense Deduction for 2021?

Any qualifying medical expenses that make up more than 7.5% of an individual’s adjusted gross income can be deducted from taxes. However, you can only claim medical expenses that you paid during the 2021 tax year.

For example, if your AGI was $50,000 last year, then you can claim the deduction for the amount of medical expenses that exceed $3,750.

Requirements for Assisted Living Tax Deductibility

To deduct certain medical expenses, an assisted living resident must meet the following criteria:

  • A licensed health care practitioner, doctor, or nurse must certify that the resident is chronically ill; unable to perform a minimum of two activities of daily living (bathing, continence, dressing, etc.) on their own; or if they need substantial supervision because of dementia, Alzheimer’s disease, or another severe cognitive impairment for 90 days.
  • A plan of care must be prescribed by a social worker, doctor, or nurse. Most assisted living communities develop a plan of care using a medical evaluation from a licensed healthcare provider, a needs assessment, and input from the resident or caregiver.

However, even if a resident does not meet the definition of “chronic illness,” they may still be able to deduct medical expenses, including entrance fees. Assisted Living Communities and tax advisors are aware of these deductions and can provide specific information to help you or a loved one.

What Assisted Living Expenses are Tax Deductible?

Medical expenses generally make up at least a portion of the monthly service and entrance fees at Assisted Living Communities. For some residents, the entire monthly rental fee might be deductible, while for others, only specific personal care services would qualify for a deduction.

Although you can’t deduct general health expenses, such as health club dues or vitamins, you can deduct many types of professional medical fees. Some common assisted living medical expenses that can be written off include:

  • Prescription drug costs and insulin.
  • Health insurance premiums.
  • Mental health expenses, such as the cost of therapy.
  • Dental expenses, including dentures, fillings, x-rays, and other orthodontic appliances.
  • Expenses incurred due to a medical need, such as travel to medical appointments and parking
  • fees.
  • Assisted Living entrance or initiation fees directly related to medical care, such as care plan development and assessment fees.
  • Nursing services (even if the person performing the service is not a nurse).
  • Meals and lodging at a hospital if the principal reason for being there is to receive medical care and as long as it costs $50 or less each night per person.

Because there are several more tax deductions available, the IRS has published a comprehensive list of medical expenses that qualify in tax year 2021.

For more information, visit irs.gov or consider speaking to a tax professional on how to calculate the percentage of assisted living costs that qualify for medical expense tax deductions.

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