Are there tax deductions for assisted living care?

A fellow caregiver asked...

My dad has Alzheimer’s and has become too much for my mom to handle. They have recently hired a caregiver to come for 8 hours a day. Is there any way that the cost of the caregiver can be a tax deduction for them? We do not want to move dad to assisted living yet, but if that is a taxable expense and the caregiver is not, we might want to reconsider our decision. This whole process is very expensive and we need to make the best financial choices to support my parents. Will we be able to take tax deductions for assisted living care?

Expert Answer

Mary Koffend is the president of Accountable Aging Care Management (AACM), an eldercare consulting and care management firm that works with elder clients and their families to find the best care providers and services to meet their needs.

Tax deductions for both caregivers and assisted living can be made under the right circumstances and with the proper documentation. It’s common knowledge that you can deduct the cost of medical expenses if they exceed 7.5% of your Adjusted Gross Income. But, many times both families and tax professionals may be missing the deduction for long-term care, non-medical costs for a “chronic” condition (as defined by the IRS).

According to Internal Revenue Code 7702B, a chronically ill person is defined as someone that meets either of the following descriptions:
1. He or she is unable to perform at least two activities of daily living (ADLs) without substantial assistance from another individual for at least 90 days due to a loss of functional capacity. (Activities of daily living are eating, toileting transferring, bathing, dressing and incontinence.)
2. He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

In order to qualify with the IRS for the deduction of long-term care, non-medical expenses for either or both of these conditions, the elder or their family must obtain a letter from a licensed health care practitioner who is a physician, a registered nurse or a licensed social worker. This letter must state that the taxpayer meets one or both of the conditions above and detail the plan of care prescribed to address these conditions. Deductible long-term care costs will be those that are consistent with the services prescribed by the plan of care. The letter does not have to be elaborate but must be specific.

In your case, getting a letter from your father’s doctor describing his medical condition and need for assistance with bathing or dressing, for example, and his need for care to meet these needs would suffice. This letter would allow you to deduct the caregiver’s cost at the present. As his condition progresses and his needs may exceed the current plan, the costs of an assisted living could be deducted. Getting a letter annually describing the condition and the plan of care is recommended.

Although your parents have just encountered this situation, there is also assistance available for families who dealt with these issues in the past. Once the letter is obtained, an amended tax return could be filed showing these expenses. You must follow the standard tax return amendment procedures.

You are encouraged to confer with a tax professional to determine if the facts and circumstances meet the IRS deductibility criteria. IRS Publication 502 has more detailed information and other potential tax benefits. It can be downloaded from www.irs.gov/formspubs/index.html.