A Place for Mom
Assisted Living
Memory Care
Independent Living
Veteran Resources

Make the best senior care decision

Is There a Tax Deduction for Memory Care Facility Costs?

By Haleigh BehrmanMarch 25, 2022
Share this article:

As a caregiver for someone with Alzheimer’s or another form of dementia, you may have wondered if you can deduct the cost of memory care on your annual taxes. The good news is the answer is yes: Depending on your financial situation, you may be eligible for a tax deduction for memory care facility costs and other expenses related to long-term care.

The out-of-pocket costs for memory care can quickly add up when caring for someone with Alzheimer’s or another form of dementia. Maximizing your tax return with qualifying memory care tax deductions will help offset some of these expenses, while making sure your loved one can afford the care they need.


In this article:


Requirements for memory care tax deductions

Qualified personal care services that provide assistance with activities of daily living are tax deductible, according to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). If you file an itemized tax return, these expenses may mean you and your family can lower your tax bill and keep more cash on hand.

Memory care falls into the category of long-term care services. While not all services are deductible, your loved one’s care may qualify for a tax deduction for memory care facility costs if they meet the following criteria:

  • They are chronically ill, which is defined as being unable to perform at least two activities of daily living and being in need of constant supervision because of physical or mental impairment.
  • They’ve had a specialized senior care planprepared by an assisted living facility’s on-site licensed nurse, in coordination with a physician, outlining the daily services the resident receives.

Tax deductions for memory care facility and assisted living costs

Caregivers may be eligible for a tax deduction for a memory care facility if they have a loved one residing in a senior living community who they claim as a dependent. A caregiver may also be eligible if they provide more than half of the financial support for their loved one’s in-home care and housing.

A portion of many memory care and assisted living communities’ fees are made up of items that qualify as medical expenses. In some instances, all of these costs associated with memory care can be completely tax deductible.

Additionally, the cost of meals and lodging could be written off as tax deductible, as long as an individual’s reason for being in a senior living community is specifically for medical care and not for personal or preferential reasons. This is most common in nursing homes, but may apply to memory care, depending on individual needs and the facility.

Some common covered medical expenses include:

  • Prescription drugs
  • Health insurance premiums
  • Transportation essential to medical care
  • Dental care (dentures, fillings, etc.)
  • Assisted living entrance fees, if directly related to medical care (such as initial assessment and care plan development)
  • Nursing services
  • Meals and lodging, if the principal reason for being at the facility is for medical care

Medical expense deductions

Caregivers may be able to deduct qualified, unreimbursed medical expenses paid that exceed 7.5% of their adjusted gross income (AGI), whether the costs were paid for themselves, their spouse, or a parent/dependent. Itemizing your medical deductions can lower the amount of taxes you owe and give you a larger return than a standard deduction, if those out-of-pocket costs exceed 7.5% of your AGI.

This can help with medical bills and costs you cover out of pocket within the year. You should itemize all medical expenses, and be sure to keep all receipts and documentation to demonstrate you meet the eligibility requirement.

An extensive list of deductible medical expenses is included in IRS Publication 502. Some of the qualifying expenses include:

  • Diagnostic devices (such as a blood sugar test kits for diabetes)
  • Assisted living, nursing homes, or other residential senior living costs, when deemed medically necessary
  • Hospital services
  • Home modifications (wheelchair ramps, safety bars, etc.)

To calculate your total medical expense tax deduction, determine the total amount of qualifying senior living or memory care expenses and the total amount of medical expenses paid for that tax year. The deduction will be this amount, minus 7.5% of your AGI.

Tax deductibility of long-term care insurance

Long-term care insurance (LTCI) is a specialty insurance policy that helps cover care expenses such as hospital care, senior living services, and in-home care. LTCI policies are purchased through private insurance companies, and they generally must be acquired by a certain age or before a senior experiences any severe health concerns. Premiums for qualified long-term care insurance may be deductible if they exceed 7.5% of the insured’s AGI.

Although the terms vary by state, qualified long-term care insurance must meet the following requirements, as written in IRS Publication 502:

  • The policy is guaranteed renewable for a specific amount of time regardless of health changes
  • Upon cancellation of the policy, cash surrender value is not provided
  • Refunds must be used to reduce future premiums — they aren’t distributed as cash
  • The policy doesn’t reimburse for services or items that would be covered under Medicare

There are limits on how much can be deducted from the premiums, which depends on the age of the taxpayer. The yearly limits on the 2021 version of IRS Publication 502 were set as follows:

  • Age 40 or under — $450
  • Age 41 to 50 — $850
  • Age 51 to 60 — $1,690
  • Age 61 to 70 — $4,520
  • Age 71+ — $5,640

Caregiver tax credits

The Child and Dependent Care Credit is a tax credit that can help offset the costs of hiring someone to care for children or other qualifying dependents in order for you to work or look for work. An individual can be considered a qualifying dependent if they aren’t mentally or physically able to care for themselves and are under your care.

To be eligible, a caregiver must:

  • Have lived with the qualifying person for more than six months
  • Have earned taxable income — money received in compensation for employment, not including unemployment benefits or pensions
  • File as single, head of household, married, or a qualifying widow(er)
  • List the qualifying person as a dependent

The credit is a percentage of the costs you paid to a care provider. Up to 50% of those dependent care expenses could be eligible for a tax deduction, depending on your income.

The federal credit has been expanded for the 2021 tax year, and this could mean more taxpayers and caregivers are eligible for the first time. There are several other legal changes for the 2021 tax year, including:

  • The available credit has increased from $1,050 to $4,000 for one qualifying dependent, and from $2,100 to $8,000 for two or more qualifying dependents.
  • The maximum credit available rose from 35% to 50% of taxpayer’s dependent care expenses.
  • The credit’s phase-out threshold is now $125,000 in income.
  • The credit is fully refundable for individuals who live in the U.S. at least half of the year.

Most states have their own versions of the Child and Dependent Care Credit that are linked to the federal credits. And, because the federal government raised the credit limit for the 2021 tax season, there are several states that will likely provide bigger credits to families.

Flexible Spending Account (FSA) also provides a caregiver with some tax advantages when paying for dependent care expenses. An FSA is a type of savings account that’s funded by a portion of your paycheck — up to a contribution limit set by the IRS — to reimburse payments for medical care.

Dependent care FSAs can be used to reimburse dependent care expenses with pre-tax dollars. As a result, this reduces your taxable income and decreases the amount of payroll taxes you have to pay.

Resources and support

The IRS has resources available online, including free tax forms and publications detailing a variety of credits and deductions. If you think you may qualify for any of these credits and deductions, consult with a senior living tax professional to ensure compliance with IRS rules.

Additionally, A Place for Mom’s expert, local Senior Living Advisors are available to provide guidance on financing memory care long-term care, all at no cost to you.

Sources

Adams, K. (2022, March 3). Benefits of a dependent care flexible spending accountInvestopedia.

Alzheimer’s Association. Retrieved March 14, 2022. Tax deductions and credits.

ElderLawAnswers. (2021, November 17). The tax deductibility of long-term care insurance premiums.

Indiana Long Term Care Insurance Program. Retrieved March 14, 2022. Health insurance portability and accountability act of 1996 (HIPAA).

IRS. Retrieved March 14, 2022. About publication 502, medical and dental expenses.

IRS. Retrieved March 14, 2022. About publication 503, child and dependent care expenses.

IRS. Retrieved March 14, 2022. Child and dependent care credit FAQs.

IRS. Retrieved March 14, 2022. Medical, nursing home, special care expenses.

Kearl, M. (2021, December 21).Best long-term care insurance. Investopedia.

Kenton, W. (2021, November 23). Child and dependent care credit. Investopedia.

Keystone Health. Is dementia care tax deductible?

The LaSalle Group. Tax time tips for caregivers of Alzheimer’s patients.

Mengle, R. (2021, May 12). Caregivers should consider these tax breaksKiplinger.

National Women’s Law Center. (2022, January 20). Families can receive bigger state benefits for child care costs in 2021.

Scott, M. (2022, January 13). Flexible spending account (FSA). Investopedia.

Tax Credits for Workers and Families. Retrieved March 14, 2022. State tax credits.

Wellmore. (2020, January). Is memory care tax deductible?

The information contained in this article is for informational purposes only and is not intended to constitute medical, legal or financial advice or create a professional relationship between A Place for Mom and the reader. Always seek the advice of your health care provider, attorney or financial advisor with respect to any particular matter and do not act or refrain from acting on the basis of anything you have read on this site. Links to third-party websites are only for the convenience of the reader; A Place for Mom does not recommend or endorse the contents of the third-party sites.

Author
Haleigh Behrman

Related Articles