Tax Deductibility of Long Term Care
Tax Deductibility of Long Term Care
We have been asked by many residents and family members if their payments to Brightview are tax deductible. In many cases, a large portion of the monthly cost for Assisted Living, Alzheimer’s and Skilled Nursing care is in fact tax deductible as a medical expense.
You will find here a summary of information about the tax treatment of long-term care services. However, please consult your own tax advisor before making decisions regarding tax deductibility of assisted living, Alzheimer’s and/or skilled nursing care expenses.
In 1996, the Health Insurance Portability and Accountability Act (the “HIPAA”) was enacted. Prior to the enactment, the cost of long-term care was deductible only if the primary reason for an individual’s admission in a long-term care facility was for medical purposes.
According to the HIPAA, for tax years beginning after 1996, “qualified long-term care services” are deductible from gross income as an itemized deduction. This is subject to the limitation that when added to any other un-reimbursed medical expenses for the year, only that amount that exceeds 7.5% of adjusted gross income is an itemized deduction.
“Qualified long term care services” can include maintenance or personal care services that are required by a chronically ill individual and that are provided pursuant to a plan of care prescribed by a licensed health care practitioner. A “chronically ill individual” includes someone who is unable to perform (without substantial assistance) at least two Activities of Daily Living for at least 90 days (in the future) due to a loss of functional capacity. It also includes someone who requires substantial supervision to protect themselves from threats to health and safety due to severe cognitive impairment.
For assisted living and Alzheimer’s care, the HIPAA now provides some clarity. In order to deduct the care costs, there must be an Activities of Daily Living deficiency or cognitive impairment. In addition, the plan of care must be prescribed by a licensed health care practitioner.
For assisted living communities, such as Brightview, that utilize a licensed health care practitioner, i.e. a registered nurse, to help prepare a plan of care in conjunction with the resident’s physician, and for those residents who meet the criteria, it would appear that the entire monthly cost may be deductible.
Depending upon your family’s specific situation, eligibility for this deduction may create a substantial tax benefit for residents or their provider. Again, we recommend that you consult with your tax advisor to assist you with your individual situation.
Note: This summary should not be treated as tax advice. All residents and potential resident and family members should consult their own income tax advisor before making any care decisions based on the possible tax deductibility of these long-term care costs.
Recommended Resource: IRS Publication 502-Medical and Dental Expenses
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