Tax Deductions and Credits for Living in Assisted Living

06 Jan 2025 Tax Deductions and Credits for Living in Assisted Living

Assisted living facilities provide essential support for seniors and individuals with disabilities, offering services such as help with daily activities, medical care, and a safe living environment. While assisted living costs can be significant, there are potential tax benefits, such as deductions and credits, that can help offset expenses. Here’s what you need to know about the tax implications of living in an assisted living facility.

Medical Expense Deductions for Assisted Living Costs

One of the most common tax benefits for assisted living is the deduction for medical expenses under Section 213 of the Internal Revenue Code. To qualify:

• Medical-Related Costs Must Be Significant: A portion of your assisted living costs may be deductible if they relate directly to medical care. This includes fees for nursing services, therapy, or medical supervision.
• Itemizing is Required: These expenses are deductible only if you itemize your tax return.
• Threshold: Medical expenses must exceed 7.5% of your adjusted gross income (AGI) to be deductible.

When Assisted Living Qualifies as a Medical Expense

For the IRS to consider assisted living costs as a medical expense, the following conditions must be met:

• Prescribed by a Doctor: A physician must certify that the individual needs assistance with at least two activities of daily living (such as bathing, dressing, or eating) or requires significant supervision due to cognitive impairment, including conditions like Alzheimer’s disease or other forms of dementia.
• Primarily Medical in Nature: The costs must primarily cover medical or nursing-related services rather than room and board. However, most expenses may qualify if the entire facility is designated for medical care.

Dependent Care Credit

You may be eligible for the Dependent Care Credit if you care for a parent or dependent living in an assisted living facility.

• Eligibility: You must provide over half the support for the individual and pay for the assisted living facility so they can receive proper care.
• Claiming the Credit: This is especially beneficial for working caregivers, as it provides a tax credit (rather than a deduction), directly reducing the amount of tax owed.

Tax-Free Withdrawals from HSAs

If you have a Health Savings Account (HSA), you can use funds tax-free to pay for qualified medical expenses, including certain assisted living costs.

Keep Detailed Records

Documentation is essential for claiming deductions or credits. Retain:

• Physician’s certification.
• Receipts for facility payments.
• The facility provides an itemized breakdown of medical and non-medical costs.

Consult a Tax Professional

Determining what qualifies for a deduction or credit can be complex, particularly with overlapping medical and living expenses. A tax professional can help you navigate IRS rules and maximize your benefits.

Living in an assisted living facility often involves significant financial investment, but understanding and utilizing available tax deductions and credits can help ease the burden. With proper planning, you can make the most of these tax-saving opportunities.

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