Tax Benefits

Expenses related to retirement living may be tax deductible for both the resident and their family caregiver if they meet the Internal Revenue Service Requirements. 

The Healthcare Portability and Accountability Act of 1996 expanded the definition of deductible medical expenses effective January 1, 1997 to include qualified long-term care services.  This would mean that if the following conditions apply, 100% of your base monthly charge would be deductible as medical expenses on Form 1040, Schedule A, Line 1 (subject to applicable rules; such as medical expenses must exceed 7.5% of adjusted gross income to be deductible).

The criteria for deducting 100% of qualified long-term expenditures are as follows:

1. The resident is unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least ninety days, or the resident requires substantial supervision to protect their health and safety due to severe cognitive impairment.  Activities of daily living include eating, toileting, transferring, bathing, dressing and continence, and
2. The services are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
   The medical deduction excludes amounts paid for extra meals, telephone charges, maintenance, cable TV, laundry, etc.  The resident should include the deductible amount in the total medical expenses entered on Line 1 of Form 1040, Schedule A - Itemized Deductions.

If you do not meet the above criteria, then the calculation for the deduction percentage is based on a review of the assisted living’s facility service contract, the operating experience of the facility and the Internal Revenue Code Section 7702B. 

Since the determination of the amount of the qualified medical deduction is not based upon a personal understanding of the resident’s situation, each resident is advised to seek the opinion of their personal tax advisor before including the deduction amount in their tax return.