While everyone looks forward to the beginning of spring, it also means another season is here: tax season. When you’re gathering all your information for the Internal Revenue Service (IRS), knowing what to deduct from your taxes can help lower your amount of taxable income.
At The Village, our residents enter our community through Independent Living, and know they have the security of higher levels of care should they need them. And during a time of changing needs, you might wonder, is assisted living tax-deductible?
The short answer is yes. When it comes to costs related to assisted living, medical expenses are tax-deductible. However, non-medical related costs are not. In order to make sure your taxes are done correctly, it’s important to know how to apply these medical costs as deductions to your taxes. While the below will provide important information, we recommend speaking with a tax professional to discuss your specific situation.
Understanding Tax Terms and How They Apply to You
Before jumping into how to find the tax-deductible items, you’ll want to understand the terms the IRS uses. This way, you’ll have full clarity about what these terms are referring to when you’re filling out your taxes.
When filling out forms for the IRS, you will likely read these terms:
- Standard Deductions – This is the specific dollar amount that reduces your amount of taxable income.
- Itemized Deductions – The other option for applying deductions to your taxes, itemized deductions include amounts paid for state and local income taxes, personal property taxes, and more. Part of paid medical expenses is included in itemized deductions.
- Adjusted Gross Income –When your income adjustments are subtracted from your gross income, it gives you your Adjusted Gross Income (AGI). One example of an adjustment includes retirement account contributions.
Now that you’re more familiar with these tax terms, let’s take a look at how assisted living applies to your taxes.
When Is Assisted Living Tax-deductible?
When you’re a resident in Assisted Living or are financially supporting someone in a retirement community, some of your monthly costs in medical expenses may be tax-deductible. In an itemized deduction, you can list your medical expenses for a deduction that are more than 7.5 percent of your AGI.
If you’re going to list these medical expenses in your taxes, then the resident receiving the medical care must meet the following qualifications:
- The person is considered “chronically ill” by the IRS, which means they need assistance with their Activities of Daily Living (ADLs). These are the daily tasks required to go about their life. Bathing, getting dressed, eating, and mobility are examples of ADLs. Those with Alzheimer’s disease or another form of dementia may also be considered “chronically ill.”
- The person has a care plan and receives care from medical professionals. This care plan will detail the level of medical care they receive.
Just because someone is living in a senior living community does not mean they have tax-deductible costs. For example, older adults who elected to move into an Independent Living community and do not need medical care or receive assistance for ADLs would not be considered chronically ill and thus would not qualify.
Everyone’s situation is unique and, therefore, may result in different ways to deduct medical expenses from taxes. According to the IRS, the cost of food and lodging at a residential nursing home may be tax-deductible if your payments are mainly for the availability of medical care needs. This may be applicable for those in Assisted Living and Skilled Nursing.
However, if availability of medical care is not the main reason for being in the nursing community, then the deductions will only apply to the medical care costs.
Assisted Living Medical Expenses
You may be wondering what specific assisted living expenses would be considered medical. Here are a few example of what you could include as tax-deductible medical expenses:
- Therapeutic care
- Cost for help with ADLs and personal care
- Preventative care
Other expenses relating to long-term care that are tax-deductible include memory care. Also, if you or a loved one ever needed short-term rehabilitation or received at-home care, then those may also qualify as deductions.
Because there are unique situations for everyone, asking for an itemized list of medical expenses can help you find everything you need for your taxes. Speaking with an accountant about what you need to do to make sure your taxes are done correctly could also provide you with peace of mind.
How Do Taxes Apply to Independent Living?
When considering where independent living factors into your taxes, it’s important to know that entering a senior living community is typically done through independent living.
Here at The Village, we recognize you may not need help with medical care or ADLs, but you’re joining the retirement community knowing that you may transition to assisted living in the future – should you need it.
You pay an entrance fee and a monthly fee to cover this future transition.
How do the entrance fee and monthly fee for independent living factor into taxes?
A portion of that entrance fee in the year that it’s paid is considered prepaid health expenses by the IRS, meaning it’s tax-deductible.
Additionally, every year you pay a monthly fee, a portion of the monthly fee is also considered tax-deductible because you are prepaying for health care in the future when and if you should need it.
How is the tax-deductible amount from the entrance fee and monthly fee calculated?
The portion of the entrance fee and the monthly fee that are considered to be deductible is dependent on how much the community spends each year providing health care for their residents.
Residents receive a letter each year outlining what that percentage is.
Live Your Best Life at The Village
At The Village, we understand that you may need a different level of care than others. Our Life Plan Community offers Independent Living, Assisted Living, and Skilled Nursing. Our variety of services and amenities are curated to ensure your time here is engaging and fulfilling.
We call Hemet, CA, our home, and we invite you to see what life here is all about. Our Assisted Living community offers a 24/7 staff who are always available to help you. Residents also receive daily housekeeping services, care assessments, personal care, and more.
In addition to quality health care, The Village has life-enrichment activity programs, a beauty salon and barbershop, daily meals prepared by our chef, and a beautiful outdoor fountain patio where you can sit and enjoy the calming noises of the water.
Call The Village today at 951-365-6127 to schedule a tour and learn more about the costs associated with senior living.