As tax season approaches, caregivers of assisted living residents typically have questions regarding the process for deducting assisted living facility (ALF) costs on federal individual income tax returns. The Internal Revenue Code (IRC) provides rules for deducting certain qualified long-term care costs as medical expenses. Normally, the costs of nursing home care should be deductible, but the status of ALF costs has not been as clear.
For ALF residents, qualified long-term care costs are “necessary rehabilitative services, maintenance or personal care services that are (1) required by a chronically ill individual, and (2) provided pursuant to a plan of care by a licensed health care practitioner.” The ALF resident must first qualify as a chronically ill individual. The resident can meet this definition if within the previous 12 months, a licensed healthcare practitioner certifies that the resident meets one of two descriptions pursuant to the IRC:
- The resident is unable to perform at least two activities of daily living (ADLs) without substantial assistance from another individual for at least 90 days due to a loss of functional capacity. ADLs are eating, toileting, transferring, bathing, dressing, and continence.
- The resident requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Maintenance or personal care services provide assistance for a chronically ill individual with his or her disabilities; therefore, if an ALF resident needs help with two ADLs, then the assistance provided by the ALF qualifies as personal care services. Likewise, if the ALF protects the individual from safety and health threats due to severe cognitive impairments, then the assistance provided by the ALF qualifies as personal care services. The certification of the chronic illness requirement must be done within the preceding 12 months. The certifying licensed care practitioner can be any physician, registered professional nurse, or licensed social worker, and this practitioner does not have to be an employee of the ALF, although this practitioner could be. The licensed care practitioner must personally examine the resident and provide a written opinion. The opinion should be obtained prior to admission to the ALF.
The plan of care is not defined within the IRC. Federal statutes require that nursing facilities have a written plan of care for each resident. Although written care plans for ALFs are not required by federal statutes, most ALFs prepare them. The plan of care must be prepared by a licensed care practitioner, and it should be prepared at or as soon after admission to the ALF as possible.If these requirements are satisfied, then 100% of the costs of the ALF (including room and board) are deductible on the resident’s 1040, Schedule A, to the extent that the costs are not reimbursed by government benefits or insurance.
The resident can claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceed 7.5% of adjusted gross income for those age 65 and older through December 31, 2016. For those under age 65, such expenses must exceed 10% of adjusted gross income. These expenses include the qualified long-term care expenses, as well as insurance premiums and other eligible medical expenses. The deduction requirement will rise to 10% for all taxpayers beginning in year 2017.
If the resident does not meet the requirements of the IRC, then the resident can still deduct the percentage of the ALF costs attributed to nursing services. The room and board and personal services costs would not be deductible. The ALF should provide an estimate of the deductible portion of its costs, and the taxpayer can attach the statement to the Schedule A. Typically 30% to 40% of the ALF costs are for nursing services.