Tax season is here, and for many seniors and family caregivers of elderly loved ones, it can be a stressful time of year. No one likes to be hit with a big tax bill, and for elderly folks living on a fixed income, keeping costs down is crucial.
For seniors, deductions for certain medical expenses, including some long-term care and assisted living expenses, are among the biggest tax-saving opportunities. And in some cases, family caregivers of older adults can include related expenses in their own tax deductions.
Since every personal situation is different, assisted living residents or family caregivers should consult with a tax advisor about which deductions they can make.
That said, here are some of the key things to know when it comes to deducting medical and assisted living expenses.
How much can you deduct?
To deduct medical expenses from your taxes, you must be eligible to itemize your deductions on Form 1040, Schedule A. The itemized expenses also need to fall under the IRS definition of qualified expenses. Taxpayers who are 65 or older or with a spouse 65 or older can deduct medical expenses that exceed 7.5% of their adjusted gross income (AGI). (For those under 65, expenses must exceed 10% of AGI.) So, if your AGI is, say, $60,000, 7.5% of that is $4,500, and if you have $7,000 in medical expenses, you can deduct $2,500.
Which medical expenses are deductible?
Tax benefits from the IRS apply to out-of-pocket medical expenses not reimbursed by insurance. Individuals can deduct qualifying expenses such as preventive care, treatments, surgery, and dental and vision care. Cosmetic procedures, over-the-counter drugs (except insulin) and general preventive health items like vitamins or gym memberships are not tax deductible.
IRS rules let you deduct any insurance premiums, or part of premiums, that you’ve paid for policies that cover medical insurance or qualified long-term care insurance that went toward qualified long-term care costs.
The amount of long-term care premiums you can claim depends on your age. For 2015, 60 to 70-year-olds can claim up to $3,800 and those over age 70 can claim up to $4,750.
What are the rules for deducting assisted living expenses?
In 1996, the Health Insurance Portability and Accountability Act (HIPAA) established that qualified long-term care services may be tax-deductible. Again, these must be itemized, unreimbursed medical expenses. Qualified long-term care can include the type of daily personal care services often provided to assisted living residents like help bathing, dressing, and eating, as well as meal preparation and household cleaning.
However, assisted living residents may only take these deductions if they qualify as chronically ill and were certified as such by a licensed health care practitioner in the previous year. To be considered chronically ill, typically residents must be unable to perform two or more activities of daily living (eating, dressing, bathing and the like) without help.
Assisted living residents who need supervision to protect against threats to health and safety due to a severe cognitive impairment like dementia may also qualify as chronically ill.
The care provided to residents must follow a prescribed plan fom a licensed health care practitioner in order to be deductible. Many assisted living communities have a licensed nurse or social worker who can work with a patient’s doctor to create a plan outlining the daily care the resident needs. Make sure to get a letter from the licensed health care practitioner that includes this care plan and explains how it addresses the patient’s chronic condition.
What can caregivers deduct?
There are also some tax breaks for family caregivers paying for an older loved one’s care out-of-pocket. In order to claim the deduction, an adult child paying for their parent’s care must be able to claim that parent as a dependent and be paying for at least half of their parent’s living expenses. The adult child can then deduct medical expenses that exceed 7.5% of their AGI. Adult children can also use flexible savings accounts to pay for dependent parent care.
Laura Dixon is a writer and editor for Caring.com, the leading online destination for the more than 43 million family caregivers seeking information and support as they care for aging parents, spouses, and other older loved ones. Caring is focused on giving expert information, tools and reviews on assisted living, senior care services, and in-home care.