Are Your Parents’ Assisted Living Expenses Tax Deductible?

Seeing your parents grow older, slow down and need help in their everyday lives can be hard to face. It can also be a confusing and highly emotional time for your parents as they process these changes. Providing the support your parents need to remain in their home can be difficult if you don’t live nearby. Even if you are close enough, taking on a caregiving role while potentially caring for children and managing a job and other responsibilities may be too demanding for your limited time. Assisted living may be the answer.

The Administration for Community Living indicates that a person turning 65 years old has nearly a 70% chance of needing some type of  long-term care services and support after this age. Although assisted living communities are more affordable than skilled nursing facilities, they’re still a significant expense. The median cost of assisted living nationwide is $4,500 per month, according to Genworth’s 2021 Cost of Care Survey. This price varies by state and is only expected to increase.

Luckily, some expenses tied to assisted living can be deducted from your taxes, but knowing what can and can’t be deducted may be confusing. This guide covers who’s eligible to receive assisted living tax deductions, criteria that allow you to deduct your parents’ assisted living expenses, which assisted living expenses are deductible and how to calculate this deduction.

Who Is Eligible for Assisted Living Tax Deductions?

If your parents have medical care expenses from services used to diagnose, prevent, mitigate, treat or cure a disease or for rehabilitative therapies, including personal care services, these expenses may be deductible. However, to deduct these expenses, you must itemize your deductions on Schedule A of Form 1040 instead of taking the standard deduction. Two primary areas of focus to determine whether your parents’ medical care expenses are deductible are if they need help with two or more activities of daily living (ADLs) and whether they received a care plan from a medical professional.

Assistance With Two or More ADLs

ADLs are common personal care tasks a person carries out to live independently. Although you might not consider personal care tasks as being medical care, needing help with ADLs qualifies as a chronic illness. While assistance with ADLs doesn’t have to be administered by a nurse, it’s classified as nursing care. 

To qualify for the tax deduction, a licensed health care practitioner must certify that your parent(s) can’t perform at least two ADLs without assistance from someone else due to lost functional capability for a minimum of 90 days. 

According to the National Center for Assisted Living, the most common activity of daily living that assisted living residents need help with is bathing, then walking. The following table outlines the percentage of assisted living residents needing assistance with the six types of ADLs. 

Professional Care Plan

A professional care plan provides an individualized and detailed map of a senior’s care to help assisted living personnel understand their needs and desires. It focuses on both medical and personal needs, as well as your parent’s overall wishes. Your parent is integral to the plan’s development, assisted by you or another family member and a representative from the assisted living facility who specializes in providing  professional care plans. To qualify eligible services provided in assisted living as tax deductions, these services must be provided based on a plan of care completed  by a licensed health care practitioner. Thus, a nurse or physician must also be involved in creating your parents’ professional care plan.

Can You Deduct a Loved One’s Expenses From Your Taxes?

A person in assisted living can usually take a tax deduction for various medical expenses included in the fees charged by the facility. They can also deduct other qualified long-term care services. Of course, certain qualifications and restrictions apply. If you incur a financial burden because you help pay for assisted living for your parents or other loved ones, you may be able to take a tax deduction.

Criteria to Claim Parent as a Dependent

The IRS generally allows you to deduct medical expenses for yourself, your spouse and your dependents. It has specific guidelines related to claiming a parent as a dependent. Criteria include: 

• Their gross annual income must be less than $4,400
• You must provide more than half their total support for the tax year you’re claiming the deduction
• They must be a qualifying relative who doesn’t live with you, such as:
  • Mother or father
  • Stepmother or stepfather
  • Mother-in-law or father-in-law
  • Grandmother or grandfather
  • Not foster parents 

Always check the IRS’s current guidelines on who qualifies as dependents to ensure the rules haven’t changed and help determine whether you can deduct medical expenses. This Interactive Tax Assistant includes a 15-minute survey that will help you assess whether you can claim tax benefits for your dependent parents. 

What Assisted Living Expenses Are Tax Deductible? 

Assisted living expenses that qualify for tax deduction include long-term care services necessary to your parent’s medical care, such as those that diagnose, prevent, mitigate, treat, cure or rehabilitate. These services include personal care required by a chronically ill person and provided through a plan of care completed  by a licensed healthcare practitioner. 

Besides services provided directly by assisted living staff, other tax-deductible expenses include medical equipment, lab fees and additional costs associated with your parent’s care. The following table breaks down expenses that are and aren’t tax-deductible.

Tax-Deductible Assisted Living Services & Other Related Expenses

• Activities of Daily Living assistance
• Medication management
• Transportation to receive medical care
• Therapies provided on-site or off-site

Other Tax-Deductible Assisted Living and Medical Care Expenses

• Artificial teeth
• Bandages
• Diagnostic test
• Eye exams, eyeglasses and contacts
• Hearing aids and necessary repairs
• Lab test costs
• Prescriptions or  OTC insulin
• Psychiatric care
• Oxygen and related equipment
• Surgeries not considered cosmetic
• Wheelchairs
• X-Rays

Assisted Living and Medical Care Costs That Are Not Eligible for Tax Deductions

• Cosmetic surgery
• Insurance premiums
• Lodging
• Meals
• Nutritional supplements
• Over-the-counter drugs not prescribed by a doctor, except insulin
• Personal use items
• Weight loss programs( weight loss is a treatment for a specific illness diagnosed by a doctor may qualify for tax deductions)

How to Calculate Assisted Living Tax Deductions 

You can only deduct the amount of your parents’ qualifying medical expenses received in assisted living that exceeds 7.5% of your adjusted gross income. Now that you know what does and doesn’t qualify for tax deductions, use the following steps to calculate your parents’ tax-deductible assisted living expenses to report on your tax return: 

• Use the itemized list of expenses received from the assisted living facility to create an itemized list of eligible expenses
• Add eligible expenses and deduct any payments received from insurance or other sources from this total
• Take your Adjusted Gross Income and multiply it by 7.5%
• Deduct medical expenses above this amount on Form 1040 Schedule A 

The actual formula to calculate the amount you can deduct looks like this: 

• Total of Qualifying Medical Expenses minus Adjusted Gross Income multiplied by 7.5% (or divided by 0.075) equals Medical Expense Tax Deduction 

To ensure you’ve calculated your deduction correctly, it’s essential to work with or leave the calculation up to a tax expert. It’s also important to keep records of all medical expenses supporting your deduction, but you don’t need to submit these with your paper or electronic return.