The costs of nursing home care can be deducted on federal individual income tax returns as medical expenses under Internal Revenue Code (IRC) § 7702B because they are considered “qualified long-term care costs”. However, the status of assisted living facility (ALF) costs has not been as clear. To assist readers, below we have summarized an article by Robert Anderson, Esq., a member of the National Academy of Elder Law Attorneys, which discusses the requirements which must be met in order to deduct ALF costs on federal individual income tax returns. Also provided is an example of a certificate which can use to certify that a resident of an assisted living facility qualifies as a “chronically ill individual” under the IRC.
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.” Thus, to deduct ALF costs on federal individual income tax returns as medical expenses, an 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 under IRC § 7702B(c)(2):
- 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; or,
- The resident requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
If an ALF resident needs help with two ADLs, then the assistance provided by the ALF qualifies as “personal care services” under the statute. Likewise, if the ALF protects the individual from safety and health threats due to severe cognitive impairments, then the assistance provided by the ALF also qualifies as “personal care services” under the statute. In both cases, ALF costs would be deductible.
A “plan of care” is not defined within the IRC. Federal statutes require that nursing facilities have a written plan of care for each resident. Most assisted living facilities also prepare a “plan of care” for each resident. The plan of care must be prepared by a licensed care practitioner.
If the two requirements set forth in IRC § 7702B 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. Under IRC § 213 (a), the resident can claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceed 7.5% of adjusted gross income. These expenses include the qualified long-term care expenses, as well as insurance premiums and other eligible medical expenses.
If the resident does not meet the requirements of IRC § 7702B, then the resident can still deduct the percentage of the ALF costs attributed to nursing services, pursuant to IRC § 213. 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.
The certification by a licensed healthcare practitioner that a resident meets the definition of a “chronically ill individual” described above 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. 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.
An example of the type of certificate which licensed care practitioners can use to certify that a resident of an ALF qualifies as a “chronically ill individual” can be found here:
CERTIFICATE OF CHRONICALLY ILL INDIVIDUAL
Taxpayer’s name: ________________________________________
Taxpayer’s Social Security Number: __________________________
This statement is provided to certify that the above individual is a chronically ill individual as defined by Internal Revenue Code Section 7702B.
The above individual is chronically ill because he/she (please check one or more of the following)
___ has been unable to perform without substantial assistance the following two activities of daily living for at least 90 days due to a loss of functional capacity: [circle the following activities the person is unable to perform: eating, toileting, transferring, bathing, dressing and continence].
___ has a level of disability similar to the level of disability that would make a person unable to perform without substantial assistance at least two activities of daily living for at least 90 days due to a loss of functional capacity.
___ requires substantial supervision to protect him/her from threats to health and safety due to severe cognitive impairment.
Date:____________ Signature of licensed health care practitioner
This certification is to be signed by a physician, a registered professional nurse, or a licensed social worker.
For further information, see IRS publication 502 – http://www.irs.gov/publications/p502/ar02.html.