Tax Benefits of Senior Living

What Tax Deductions Apply to Senior Living?

The most common deduction is the medical expense deduction, which allows taxpayers to deduct qualified, unreimbursed medical expenses that exceed 7.5 percent of their Adjust Gross Income.  To claim the medical expense deduction, taxpayers must itemize their deductions on their tax return and must keep track of all their medical expenses.

A family member who pays for all or a portion of the cost of assisted living services may also be eligible for deductions if the resident qualifies as a dependent.  To claim an assisted living resident as a dependent, the family member must contribute at least 50 percent of the support of the resident during the year and meet certain other requirements.

How Does the Medical Expense Deduction Work?

Active Adult and Independent Living
There are no specific tax breaks for those who live in active adult or independent living communities.  However, if you are receiving medical services from a home health care nurse or caregiver, you may be able to deduct the cost of those services if they are not already covered by insurance.  Services must be directly related to medical care and health to be deductible and may include occupational therapy, physical therapy, speech therapy, home health aides and meal preparation.

Assisted Living
Residents of assisted living and memory care communities (link to landing page) may also deduct a portion of monthly fees as a medical expense on federal and state tax returns if they are receiving long-term personal care services or need constant supervision.  These residents must have been certified as chronically ill within the previous 12 months by a licensed health care practitioner, such as a physician or nurse, and have a plan of care that outlines the specific services received.

Skilled Nursing Facilities/Nursing Homes
Skilled nursing services not covered by Medicare are eligible for deduction as a medical expense.  Generally, 100 percent of out-of-pocket costs in a skilled nursing facility are deductible because medical care is the main reason for admission to such a facility.

Continuing Care Retirement Communities (CCRCs)
Also known as life plan communities, continuing care retirement communities (link to CCRC landing) generally offer independent living, assisted living, and skilled nursing care (link to respective landing pages) on the same campus. At many CCRCs you pay a one-time entrance fee and then monthly fees based on the size of your residence and the number of occupants. Because the entrance fee essentially helps pay for medical and long-term care services, you may be able to deduct a portion of those fees as a medical expense on your federal and state tax return.

What Qualifies as a Medical Expense

There are other medical deductions you may claim, whether you live in a community or not. These include, but are not limited to:

• Out-of-pocket costs for hospitalization, doctors, psychiatrists, podiatrists, or other medical services not covered by Medicare or other insurance.
• Dental care, prescriptions, copays, eyeglasses.
• Premiums for qualified long-term care insurance and health insurance premiums not paid with pre-tax dollars.
• If required for medical care, you may also be able to deduct the costs for housing, food, clothing, transportation to the doctor and some home modifications.
• Programs for weight loss, alcohol treatment or smoking cessation may be deductible if they’re part of a treatment for a specific disease. Wigs for hair loss due to medical treatments of conditions may also be deductible.

Explore more tax benefit tips from an expert in our resource library.