If you or your loved one reside in a retirement community, do you know what type of residential expenses you can write off on your taxes? Are you unsure what type of medical costs might be eligible for a tax deduction? Senior living can be expensive and the right tax breaks can save you or your estate money. Here’s what you need to know so that you can plan appropriately for your financial goals as we explore senior living and taxes: what you need to know.
Is Senior Living Tax Deductible?
Assisted living and memory care community fees are mostly tax deductible, as these are considered medical costs. In order to itemize the deductions, you’ll need to get an order from your physician that states that you or your loved one needs assistance with at least two activities of daily living, or ADLs. Activities of daily living include bathing, grooming, transferring, eating, toileting, and a few additional ADLs. The assisted living or memory care community then needs to provide a care plan that outlines that assistance. Care plans are required at assisted living and memory care communities, so this shouldn’t be a concern.
If assisted living or memory care expenses exceed 7.5% of the resident’s adjusted gross income, it can be deducted. This includes the community’s monthly fee, which covers assistance and other support.
For skilled nursing care in a health care community, expenses are considered medical and can be deducted.
Can My Adult Child Claim My Senior Living Expenses?
If your adult child pays some of your senior living expenses, they might be entitled to a tax deduction themselves. However, in order to claim the deduction, the senior must be listed as the adult child’s dependent. If this is the case, any medical expenses can be deducted.
When Is a Senior Considered a Dependent?
An older adult is considered a dependent of their adult child if they have not earned or received more than the set gross income test limit throughout the year. This limit is set by the IRS and as of 2022 was $4,400. The adult child must also have provided support that is more than the senior’s income by at least $1.
Who Can Help Me with Tax Questions and Filing?
Senior living and taxes is a complex topic and one for which we must recommend you seek expert consultation. If you don’t already work with an accountant who has experience serving older adults and their families, now is the time to find one. An elder law attorney and financial advisor can also be a wonderful addition to the advisors that can help steer your future planning.