Make the best senior care decision
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 that he 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, and maximizing your tax return with qualifying memory care tax deductions will help offset some of these expenses while allowing you to make sure your loved one can afford the care they need.
Qualified personal care services that provide assistance with activities of daily living may be eligible for tax deductions, 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:
Caregivers may be eligible for a tax deduction if they have a loved one residing in a senior living community whom they claim as a dependent and who meets residency requirements of the U.S., Canada, or Mexico. 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 commonly covered medical expenses can include the following:
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Caregivers may be able to deduct qualified, unreimbursed medical expenses 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 that you meet the eligibility requirement.
An extensive list of deductible medical expenses is included in IRS Publication 502. Some of the qualifying expenses include the following:
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.
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:
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 2022 version of IRS Publication 502 are set as follows:
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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 do the following:
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. Most states have their own versions of the Child and Dependent Care Credit that are linked to the federal credits.
For the 2021 tax year, the federal credit was expanded under the American Rescue Plan Act of 2021, which meant more taxpayers and caregivers were eligible for the first time. These changes have since expired. However, there are enhancements and new alterations for the 2022 tax season you’ll want to be aware of. These include the following:
A flexible spending account (FSA) also provides a caregiver with some tax advantages when they’re paying for dependent care expenses. A 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 pretax dollars. As a result, this reduces your taxable income and decreases the amount of payroll taxes you have to pay.
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 trained Senior Living Advisors are available to provide guidance on financing memory care and long-term care, all at no cost to you.
Indiana Long Term Care Insurance Program. Health Insurance Portability and Accountability Act of 1996 (HIPAA).
Keystone Health. Is dementia care tax deductible?
ElderLawAnswers. (2022, December 9). Tax Deductions for Assisted Living Costs.
Internal Revenue Service. (2022, September 6). Medical, nursing home, special care expenses.
ElderLawAnswers. (2022, December 9). The tax deductibility of long-term care insurance premiums.
Internal Revenue Service. (2023, January 26). Topic No. 502 Medical and Dental Expenses.
Internal Revenue Service. (2023, February 17). About publication 502, medical and dental expenses.
Internal Revenue Service. (2023, January 11). About Publication 503, child and dependent care expenses.
Tax Credits for Workers and Families. State tax credits.
National Women’s Law Center. (2022, January 20). Families can receive bigger state benefits for child care costs in 2021.
Scott, M. P. (2022, January 13). Flexible spending account (FSA). Investopedia.
Scott, M. P. (2022, January 13). Flexible spending account (FSA). Investopedia.
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