Are Nursing Home Expenses Tax Deductible?

Yes, some nursing home costs are tax deductible. The costs that can be deducted generally fall under medical expenses. However, it’s important to understand that strict rules and restrictions apply.

Nursing homes are not the same as assisted living or memory care communities. Nursing homes provide a level of medical care not offered by assisted living or memory care communities. Therefore, there are different tax deductions to consider depending on the type of facility you or your loved one live in.

“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body,” according to the IRS.^[01]

These medical expenses may include, but are not limited to, the following:

• Costs of specific long-term care services
• Costs of a qualified long-term care insurance contract
• Payments for medical services rendered by doctors, dentists, and other medical providers
• Costs of medical equipment and supplies
• Premiums paid toward insurance that covers medical expenses ^[01]

Generally, nursing home expenses can be claimed as tax deductible medical expenses, as long as specific rules are met. These medical expenses can be deducted via Schedule A (Form 1040), Itemized Deductions.

Who can I claim expenses for?

In most cases, you can claim these medical expenses for the following people:

• Yourself
• Your spouse
• Your dependent

Don’t make the mistake of assuming someone is your dependent. It’s important to understand the IRS’s definitions to determine if someone truly qualifies as your dependent through IRS Publication 502.^[02]

Let our care assessment guide you

How much can I claim?

For the 2023 tax year, if you’re not taking the standard deduction, you can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income — this is your gross income minus any adjustments to income.^[02]

For example, if your adjusted gross income is $38,000, you’ll be able to start claiming eligible medical expenses once they exceed $2,850.

The expenses you can claim will also vary based upon whether your loved one is primarily in a nursing home for medical care or for nonmedical reasons. Some expenses cannot be claimed if your loved one is in a nursing home for nonmedical reasons, as shown in the table below.^[02]

Do nursing home residents on Medicaid have to file taxes?

Medicaid is not taxable income, but beneficiaries should still file taxes. Most people who are eligible for Medicaid won’t owe any taxes. However, the nursing home resident or their Power of Attorney is still responsible for filing taxes for any taxable income. People who receive Medicaid only need to pay taxes on income that goes above the annual Medicaid income threshold. For instance, if the annual Medicaid income limit in your loved one’s state is about $13,000, any income they receive above $13,000 is taxable. And remember, each state has a different income limit.

Even if your loved one doesn’t owe any taxes, they should still file because they may receive a tax return. This will help reduce the likelihood that someone else fraudulently files in their name. If you’re not sure if your loved one’s income is taxable or they need help filing, consider speaking with a CPA Tax Preparer or using a free online tax service.

“Simply put, if itemizing your deductions lowers your taxable income by more than a nominal amount than taking the standard deduction, then it lowers your tax liability and is therefore worth doing,” said Chad Holmes, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, a certified public accountant (CPA), and the founder of Formula Wealth, a financial planning firm.

Read more:Caregiver and Senior Tax Tips: 18 Top Questions Answered

As with any major financial or legal decision, you should consider consulting with an accountant or tax attorney of your choosing to learn if taking the medical expenses tax deduction makes sense for your unique situation.

How a tax deduction will affect you

The medical expenses tax deduction is a deduction — not a tax credit. It’s important to understand that a tax deduction is not the same as a tax credit, even though they sound similar.

“A credit reduces your tax liability dollar for dollar, while a deduction reduces your taxable income,” Holmes said. “[A deduction] reduces your tax liability by the percentage of your tax bracket.”

A tax deduction may be less beneficial than a tax credit. In addition, the medical expenses tax deduction specifically may not make sense for people with limited medical expenses in a specific calendar year.

“If someone’s medical expenses are likely not going to be more than 7.5% of their adjusted gross income, then it may not be worth keeping track for tax deduction purposes,” Holmes said.

Keep in mind that you can choose to take this deduction each year. It’s not a one-time decision for life.

For example, if your dependent moves into a nursing home in December, you’ll only have the expenses of one month for that year, and you can choose to take the standard deduction that tax year. However, you would be able to claim 12 months of expenses for the following year, and it may make sense to take the medical expenses tax deduction for that tax year.

How do I track medical expenses?

If you’re planning to take the medical expenses tax deduction, you’ll need to use a method for tracking eligible medical expenses.

“I am a spreadsheet kind of guy. Many people would rather a hospital stay over working in Excel,” Holmes said. “If you hate Excel, don’t choose that. Whatever you’re comfortable with is best.”

Some other tracking options available include Quickbooks or Intuit Mint. Whatever tracking solution you choose should make it easy to track or audit expenses and cash flows. It should also have a way to organize your receipts.

You may also ask your medical providers if they have an online patient portal or online billing system that allows you to view bills from the convenience of your phone or computer. This can make it easier to track your expenses during the year.

Who can help me if I have tax questions?

You may be able to find simple answers through the IRS’s Interactive Tax Assistant. However, more complex questions may be directed to an elder law attorney, a tax attorney, a tax accountant, a financial advisor, or some other financial expert. In some cases, you may want to consult with multiple experts to learn your options and make an informed decision.

Talk with a Senior Living Advisor

With the median national costs of a private room at a nursing home topping more than $100,000 a year, it’s understandable if you want to know whether it’s the appropriate setting for your loved one before they move in.^[03]

Typically, nursing homes are a good fit for people with the following conditions:

• Terminal diseases
• Serious chronic conditions
• Serious progressive illnesses

Residents receive support with activities of daily living (ADLs), such as help with toileting and prepared meals. Nursing homes also provide needed skilled nursing care, including wound care and IV therapy, provided by licensed health care professionals.

Nursing homes vs. assisted living

While they don’t provide a level of care as high as nursing homes, assisted living communities do provide limited help with ADLs. Some assisted living communities may allow home health care agencies from outside the community to provide skilled nursing care to residents as needed.

Nursing homes are usually higher priced than assisted living communities. The national median yearly cost for assisted living was $58,000 in 2023, a significantly lower cost than nursing home care.^[03]

If your loved only needs help with limited ADLs, an assisted living community may be a better fit for their needs. In addition, assisted living costs may be tax deductible as medical expenses.

Nursing homes vs. memory care

While nursing homes offer many nonmedical and medical supports, a secured memory care unit can provide a unique and safe environment tailored to the needs of people with memory issues. These communities can be a good fit for people with Alzheimer’s disease or another dementia diagnosis.

Memory care options are also more expensive than assisted living communities, but less expensive than nursing homes, with a national median yearly cost of $72,000, according to A Place for Mom’s 2023 Cost of Care Survey.^[04]Memory care expenses may be tax deductible as medical expenses, too.

Nursing homes vs. in-home care

Nursing homes require your loved one to live in a communal environment, while in-home care can allow your loved one to continue to live in the familiar atmosphere of their home.

Home health care can be ideal for someone who requires medical support, as it focuses specifically on medical care in the home. In contrast, home care may be a better fit if your loved one only needs support with ADLs — not medical care.

It can be hard to determine a national median cost for in-home care, as costs depend upon how many hours a specific client needs care.

In-home care may be tax deductible when it’s considered a medical expense. For questions about in-home care tax strategies, it’s best to work with a financial or legal professional.

It can feel like an overwhelming challenge to locate senior care options, but you don’t have to go on this journey alone. The compassionate Senior Living Advisors at A Place for Mom can help you learn about the care options available to your loved one. They can help you find local options and even set up community tours for you — all at no cost to you or your family.