Assisted Living

[Nashville]

As nursing homes are taking the life savings of senior citizens, the deductibility of medical expense has been discussed many times. The "safe" answer is always consistent, i.e. nursing home costs are deductible to the extent they are medical-related and not domicile-related. I don't believe there is a safe harbor from the IRS or from court decisions. The tax preparer is virtually on his own to make this determination, and to be honest, is not always professionally qualified to classify all the costs.

Level-of-care affects the cost, and "Assisted Living" centers are mushrooming in popularity these days. These places offer a domicile with very limited nursing staff and availability of medical care.

Of course, the same deductibility standards exist for purposes of itemizing medical costs. Obviously, the percentage of the amount spent which can be considered "medical" is much less for an assisted living facility than for a full nursing home facility. And there are no "safe harbors". However, I'm sure these facilities are required to have a minimal level of trained medical staff, and those staffing costs are rolled into the daily room fee, even if the resident makes no use of such.

Does anyone have access to "industry standards" which might give independent statistics for this?

[FEDUKE404]

Major issue

The most important thing to determine upfront is that there is a substantial difference between a "retirement facility" and an "assisted living" facility. Sometimes the former has a subsection of the latter, whereas the latter generally stands alone.

Merely being old and/or needing some assistance is insufficient to cross the threshold for living expenses to be "medical" in nature. Many/most retirement facilities will provide some information to their tenants, along the lines of "you may consider x% of your annual costs to be for medical coverage." I have also seen statements from assisted living facilities stating something such as "Mr. X requires such and such care and is unable to perform without assistance the following activities."

The IRS has fairly clear guidelines for deducting assisted living expenses, namely 1) the person must be chronically ill and 2) unable to perform a certain level of "Activities of Daily Living." Some confusion may lie in your interpretation of the "medical" aspects for someone in a true assisted living environment where it is not uncommon to be able to legitimately deduct virtually all costs on Schedule A.

It has been my experience that the vast majority of the clients I have encountered who reside in an assisted living facility clearly qualify to claim virtually all expenses as a medical expense. OTOH, those in a retirement facility generally have minimal "medical expenses" that meet the IRS criteria.

FE

[Gary2]

Most assisted living facilities I've seen provide very little in medical services, often just medication management, on-site nursing staff, and free transit to medical appointments. The bulk of the services are things you might find at a resort: housekeeping, laundry, communal meals, social activities, shuttle services. This is not to imply luxury, it's simply a convenient analogy. Often they'll have a dementia or nursing wing, with a higher level of medical services. There's certainly a continuum from independent living communities through nursing homes.

But I've always seen them able to provide a breakdown of medical (deductible) and non-medical costs. In theory, their numbers could be challenged on audit, but I see know reason why a preparer couldn't rely on them in good faith, as longas no red flags trigger further due diligence.

Perhaps the character of assisted living facilities, or the meaning of the term varies by region. They're an evolving business.

[Jiggers]

The assisted living facilities will usually provide an allocation of medical/non-medical ratio that can be used in determining the deductible portion of the monthly cost.

Sure, the IRS can question the allocation, but the fact that you have that does show that you did your due dilligence on this amount.

[zeros]

Rent Credit for Minnesota

If part of the expense is rent, then a certificate of rent paid is issued. I subtract that from the total amount charged to get the medical expense.

[Burke]

The assisted living facilities will usually provide an allocation of medical/non-medical ratio that can be used in determining the deductible portion of the monthly cost.

Sure, the IRS can question the allocation, but the fact that you have that does show that you did your due dilligence on this amount.

I have found this to be the case, and ask for the letter if the TP does not have it. The ones I have seen are prepared by their legal counsel, and refer to IRC section codes. And they also address the entrance fee as well.

[FEDUKE404]

Assisted living expenses generally a deduction

Most assisted living facilities I've seen provide very little in medical services, often just medication management, on-site nursing staff, and free transit to medical appointments. The bulk of the services are things you might find at a resort: housekeeping, laundry, communal meals, social activities, shuttle services. This is not to imply luxury, it's simply a convenient analogy. Often they'll have a dementia or nursing wing, with a higher level of medical services. There's certainly a continuum from independent living communities through nursing homes.

But I've always seen them able to provide a breakdown of medical (deductible) and non-medical costs. In theory, their numbers could be challenged on audit, but I see know reason why a preparer couldn't rely on them in good faith, as longas no red flags trigger further due diligence.

Perhaps the character of assisted living facilities, or the meaning of the term varies by region. They're an evolving business.

Your area of the country must have a far different definition of assisted living from that of this area. (And again I am not referring to a "retirement facility.")

A relative of a client lives in such a place, which I have visited. Virtually every resident I saw there has dementia, overwhelming medical issues, wheelchair-bound, etc. (The facility also has a separate wing for advanced Alzheimer's residents, with the main difference being a locked corridor and much, much higher care-giver levels for those in the final stages of that illness.)

The facility does issue an annual summary statement, and in so many words it says something along the lines of "due to the nature of our facility the residents are incapable of self-care (blah blah blah) and it is our interpretation that all expenses paid, except for limited personal expenses, can be treated as a medical deduction. Check with your tax advisor."

OTOH, I have seen statements from residents of retirement homes and those statements usually have something loosely stating "only a percentage of your monthly costs can be deemed to be medical expenses." For residents in their first year, there is usually some statement related to the entrance fees which generally are not "medical" in nature.

While it is true the assisted living facilities here do "provide very little in medical services..." in the manner you described...the facility is nowhere near a "hospital" environment...there is absolutely no doubt in my mind that the bulk of the expenses for a resident of such assisted living facilities DO fully qualify as deductible "medical" expenses within the IRS guidelines.

To give you some idea of the amounts involved, the person I cited above pays ~$65k/year to the facility. As that person's condition further deteriorates (more levels of care needed) the costs will climb even higher.

FE