People often feel one of two ways during tax season: excited as they await a refund or stressed by the possibility of a large bill. As we age, medical needs tend to expand, and with those needs come out-of-pocket expenses that can upset even the best budgets.
Although many senior living options qualify for some degree of tax deduction, traditional independent living expenses are typically not tax-deductible because they are not considered medical expenses. However, there are several living expenses that qualify for the medical tax exemption.
As you sit down to figure out where you might be able to save this tax season, here’s what is and is not tax-deductible:
When filling out your federal income tax return, you can choose between taking the standard deduction or claiming itemized deductions. For most taxpayers, claiming the standard deduction is the best option. However, you should carefully examine your deductible expenses to ensure this is the right decision for you.
Here are the standard deductions:
If you are at least 65 years old or blind, you can claim an additional standard deduction of $1,400 (or $1,750 if claiming the single or head-of-household filing status). The additional deduction doubles if you are age 65 or older and blind.
For those living in assisted living communities, part or all of the living expenses may qualify for a medical-expense deduction. According to the IRS, any qualifying medical expenses that make up more than 7.5 percent of an individual’s adjusted gross income can be deducted from taxes.
For most residents in assisted living communities, medical expenses make up at least a portion of the monthly service and entrance fees. For assisted living to be tax-deductible, the following qualifications must be met:
A resident reaches this qualification under two circumstances:
A care plan is a written outline of the daily services a resident will receive. Generally, these include assistance with the activities of daily living. Nursing care or care provided by a certified nursing assistant are both considered to be from a licensed medical professional.
You can find further clarification about the requirements for the medical tax deduction by speaking with a tax advisor. They can help you calculate the percentage of assisted living costs that qualify as medical expenses.
Long-term care expenses are deductible under the 1996 Health Insurance Portability and Accountability Act (HIPAA). Eligible expenses that can fall under long-term care include:
The services provided must be medically necessary, including:
Long-term care insurance premiums are also tax-deductible to the extent that the premiums exceed 7.5 percent of an individual’s adjusted gross income. Long-term care insurance deductible limits as of 2022 are as follows:
According to the IRS Publication 502, only medical services provided by a home care worker can be deducted. Qualifying medical services include:
At-home care that is not considered medical service includes personal care and household maintenance. Therefore, these services are not eligible for a tax deduction.
Caregivers claiming an adult dependent can also receive some relief from expenses related to at-home care. In 2022, caregivers can claim up to $8,000 per dependent, up to $16,000.
To receive specific tax and filing information for your unique circumstances, consult with a licensed tax professional. And for living options that promote opportunities to live an engaged, meaningful life, explore WesleyLife’s communities.