Tax time is stressful for everyone, but there may be some good news for seniors receiving medical care in their homes, assisted living communities or skilled nursing settings.
Not every expense is tax deductible, but there are some savings to be had.
Is Assisted Living Tax Deductible?
The short answer is yes. Some expenses associated with assisted living and other types of senior living are tax deductible. However, there are strict eligibility rules and expenditure thresholds that come into play.
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“A misconception many people have is that anything related to senior living or care is tax deductible,” says Jonathan Gassman, principal emeritus at Prager Metis CPAs in New York City.
While some items are tax deductible, there are specific rules about how those deductions can be taken.
The biggest rule, Gassman says, is that an expense must be medically related, such as costs for diagnosis, cure, mitigation, treatment or prevention of a disease or ailment and preferably prescribed or ordered by a physician — but not always.
In addition, medical expenses must exceed 7.5% of your adjusted gross income in order to qualify for a tax deduction. The IRS defines adjusted gross income as “gross income — including wages, dividends and capital gains — minus certain adjustments to income.”
Finally, it can “depend on the community and the level of care that person is in,” says Xan Smith, chief financial officer of Goodwin Living, a not-for-profit senior living company based in northern Virginia.
For example, seniors in a nursing home may be able to deduct more of their expenses than someone living in an independent living community because nursing home care is typically related to medical necessity. Medical expenses are what can be deducted, so the more medical support a senior needs, the more expenses may be eligible for deduction.
Because tax laws are complicated and every health, living and financial situation is unique, you should always check with a certified tax professional who can offer expert insight tailored to your specific circumstances.
[Read: 11 Signs Your Aging Parent Needs Senior Care]
Are Senior Medical Care Expenses Tax Deductible?
One type of medical expense that is tax deductible is the cost of durable medical equipment, such as:
— Oxygen tanks
— Wheelchairs
— Catheters
— Dentures
— Alternative therapies, such as acupuncture and chiropractic care
— Prescription medications not covered by your insurance
— Diabetic care, including blood-testing kits
— Lodging or traveling to receive medical care
If you have questions about which medical costs are deductible, the IRS spells out the specifics.
[READ: Understanding the Impact of Health Conditions and Medications on Seniors]
Are Medicare Expenses or Other Benefits Tax Deductible?
The simple answer is no. Any medical-related deductions apply only to your out-of-pocket costs. You can’t deduct any expenses that are covered or reimbursed by Medicare, Medicaid or other insurance. This includes expenses you pay with the proceeds from a long-term care insurance account.
Gassman says he gets this question often, but “tax-qualified long-term care insurance benefits come to you tax-free” and, as such, are not eligible for deductions.
Some other benefits may also be ineligible for deductions. For instance, if you receive a veteran’s benefit — such as Aid and Attendance, which provides monthly financial assistance to veterans and their surviving spouses for assisted living — the portion of your expenses that are covered by that benefit would not be tax deductible.
[READ: Does Medicare Pay for Nursing Homes?]
Which Forms Do I Need to Claim Tax Benefits?
Insurance companies that pay long-term care insurance benefits are required by the Internal Revenue Service to provide claimants with a 1099 LTC form, Gassman explains.
This form reports payouts from an insurance company for long-term care insurance policies or advance payments on a life insurance contract death benefit if you receive one.
Also called accelerated death benefits or a living benefit, this type of payment may be available if you’ve been certified as terminally ill or chronically ill within the previous 12 months and have a life insurance policy that allows the policy holder to claim a portion of the policy’s face value before death. Not all life insurance policies have such a clause, so check the fine print on your policy.
If you’ve received any such payments, they’ll be listed on the 1099 LTC form. This document — issued by the entity that made the payments — provides an important accounting of what’s been paid out.
“Make sure you give this to your accountant as there are special forms to complete,” Gassman adds.
Levels of Care and Tax Deductions
As mentioned, there are different levels of care within the broader senior living space, and some of these may offer more options for tax deductions than others.
Generally speaking, the more complex and medically based care a senior needs, the more likely it is that some or all of their expenses will be tax deductible.
Here’s a breakdown of what to expect at different levels of senior care.
Are home health aides or independent living expenses tax deductible?
In short, there are no specific senior living-related tax breaks if you move into an independent living community. However, Gassman says, you may be able to deduct the cost for home care services you engage there, but only if they’re medically related.
For example, if you have a caregiver who helps with activities of daily living, or ADL, such as dressing, bathing, medication management or physical therapy exercises, these services may be deductible in some cases.
However, only compensation for their time providing medical care is deductible. That means you may need to apportion their wages if they do other tasks, such as pet-sit or drive you to the supermarket.
With that example, if the home health aide costs $30 per hour, and you hire them for four hours per week, how they spend those hours matters: If they spend just one hour providing medically necessary care and the other three on household chores, you can claim only that single hour as a tax deduction.
Keeping accurate records of how much time aides spend with you and the types of tasks they complete can help you more accurately calculate what you can deduct come tax time.
In addition, there are rules around the number of ADLs and how often they are rendered that can influence what’s tax deductible. To qualify as chronically ill, you must require assistance with a minimum of two activities of daily living (bathing, dressing, eating, toileting and transferring) or need substantial supervision to stay safe if a cognitive impairment is present. The certification must be made within the previous 12 months by a licensed nurse, doctor or other health care practitioner who must also provide a plan of care outlining the specific services you need.
Getting this certification isn’t always straightforward, so “you can see how it gets super complex,” Smith points out.
This is why it’s so important to talk with your tax advisor before you engage a home health aide for more than a few hours a week, Gassman adds.
What’s more, you might end up on the hook for payroll taxes, depending on how much care you receive.
“The rules vary from state to state, but if you are paying someone to work in this capacity for a certain number of hours per week, you may be considered a bona fide employer and have to withhold and pay taxes on these wages,” he explains.
Hiring someone through an agency may alleviate some of those tax concerns because the agency often is considered the caregiver’s employer. However, it’s always best to check with an agency about your respective responsibilities.
Assisted living: Which expenses are tax deductible?
Rules for assisted living communities are similar to those for independent living. Fees may be tax deductible if an assisted living resident is chronically ill and medical care is prescribed by a licensed health care provider or physician.
To qualify as chronically ill, you must require substantial supervision and assistance with at least two ADLs or have a severe cognitive impairment, such as Alzheimer’s disease or another form of dementia. In this case, rent for the room and care may be tax deductible.
But again, there are some caveats as to what’s deductible and how it’s itemized. Care services must be provided based on a care plan that’s been prescribed by a licensed health care provider. In an assisted living community, this may come from a staff nurse in coordination with the resident’s physician. And, the cost of unreimbursed medical expenses must be greater than 7.5% of the resident’s adjusted gross income.
Are nursing home expenses tax deductible?
Many — but not all — nursing home expenses are tax deductible.
“The vast majority of the time, someone has been in skilled nursing because of a medical need,” Smith says. “So, that can be up to 100% deductible.”
This means any out-of-pocket costs you incur for skilled nursing home care are usually tax deductible because the main reason for admission to such a facility is to receive medical care and services.
However, any add-ons to your bill that are not medical, such as costs for hair or nail care and cable television fees, cannot be deducted, even if you pay out of pocket for these.
Memory care: Which expenses are tax deductible?
As with nursing home care, memory care is generally undertaken because of a chronic medical need.
“So, if somebody is in a memory care facility to ensure that they stay safe, they may not have as many medical needs, but the cognitive issues have necessitated their being in a memory care facility,” Smith explains.
In an instance like that, the care would be tax deductible, as it satisfies the IRS’s definition of chronic illness.
Continuing care retirement community: Which expenses are tax deductible?
If you enter a continuing care retirement community, or CCRC, which generally has independent living, assisted living and skilled nursing care on the same campus, portions of entry fees and monthly fees that apply for medical care may be tax deductible.
As you move through the different levels of care, you may be able to deduct more of your costs; for example, when you first enter the independent living section of the CCRC, you may not have any tax-deductible expenses. But as your care needs increase, so might your eligible expenses.
With any of the above, if you are going to take an income tax deduction on your tax return, it’s critical to keep accurate records and receipts to support any deduction you claim on your income tax return.
The Benefits of Itemizing Senior Care Expenses
Because the standard deduction in the tax code increases every year, many people no longer itemize deductions on their taxes, Gassman says. However, if you have significant medical expenses, there could be an advantage and huge tax savings in itemizing.
According to the IRS, the standard deduction for tax year 2025 is $15,000 for an individual — that’s an increase of $400 from 2024. If you are 65 or older, you get an additional $2,000. This would bring your total standard deduction to $17,000. For a married couple who are both 65 or older and are filing jointly, the standard deduction is $30,000 plus $1,600 for each spouse or $33,200 total.
If you itemize your deductions and they exceed the standard deduction, you could save a good bit of money. Remember, however, that your total annual medical expenses must exceed 7.5% of your adjusted gross income in order for you to claim these deductions, Gassman notes.
As complicated as this all is, the base formula is to take the sum of all your qualifying medical expenses and subtract your adjusted gross income multiplied by 0.075 (that’s the 7.5% threshold).
For example, if your total qualifying medical expenses are $10,000 and your AGI is $60,000, your medical expenses deduction would be $5,500.
Sample tax scenario
Gassman uses the example of his own mother at age 96. She lives in her own home and has long-term care insurance that pays approximately $10,000 per month for her medical care. This money is not taxable as income. However, there must be documentation that the funds are being used for her medical care.
The long-term care insurance is running out, so she will need to take money out of her individual retirement account, or IRA, to help cover her care. The money she withdraws from her IRA account will be taxable. For the most part, any medical expenses she pays will be tax deductible.
“It can be confusing,” Gassman says, “so it’s best to seek guidance from your tax advisor to help you weigh the pros and cons of withdrawing money from various types of accounts and investments to pay for medical care, especially after retirement.”
Should You Make Your Parent a Dependent?
There may be a tax benefit for adult children who are helping to support a parent.
If you provide over 50% of their support, and their earnings are under a certain threshold — for 2024 that threshold was $5,050 — you can claim your parent as a dependent, says Edward Nisanov, CEO and owner of New York-based Nisanov Tax Group.
You get a $500 deduction for each dependent, the IRS notes. If you’re contributing more than 10% of the support according to a multiple support agreement (a legal declaration that must be signed by all parties that are contributing to the senior’s care), you may be eligible for a deduction.
Nisanov adds that even single people with no children who declare a parent as a dependent can also claim head-of-house status.
“This means a larger standard deduction than if they were to file without this designation,” he explains.
Seek Expert Advice: Tax Deductions Might Save You Big Money
Some senior living medical expenses may be tax deductible, and those deductions can add up.
“It won’t pay for all the costs — senior care is very expensive — but it will help,” Smith says. “That’s why I think people should take advantage of tax deductions they’re eligible for.”
He urges seniors in these situations to talk to experts to maximize their benefits.
“Accessing medical care is so complex to begin with, and then you layer this on,” he says. “So, ask for help, either from the community or outside advisors.”
Often there are free resources they can access via a local senior center or local Area Agency on Aging.
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originally appeared on usnews.com
Update 01/08/25: This story was previously published at an earlier date and has been updated with new information.
