Health Care Tax Deductions
For most retirees, tax time is akin to having your teeth pulled. It's not fun but certainly needs to be done. Fortunately, seniors in nursing homes, assisted living facilities, or the like can sometimes deduct these expenses from their taxes.
As with anything involving the IRS, the rules for deductions are not always 100% clear. This article is designed as a starting point. You should consult with a CPA or other qualified tax professional regarding your individual case. In addition to senior living deductions, we'll also show you other health related deductions you can take. Most of this information was pulled from the IRS's Publication 502: Medical and Dental Expenses.
What are Medical Expenses?
The IRS defines medical expenses as “costs of diagnosis, cure, mitigation, treatment or prevention of disease and the costs for treatments affecting any part of the body. Included in these costs are equipment, supplies, and diagnostic devices. Expenses do not cover things that are only beneficial to health such as vitamins and vacation. Medical expenses also include insurance premiums, transportation costs to medical care, long-term care services and long-term care insurance.
How Much Can You Deduct?
First, you must itemize using a Form 1040 Schedule A. You are allowed to deduct only the amount of medical expenses that are more than 7.5% of your adjusted gross income (AGI) on your 1040.
Here's an example:
Your AGI is $50,000. And 7.5% of that is $3,750. Your qualifying medical expenses for that year are $10,000 so you can deduct $6,250 ($10,000 – $3,750).
Long-term care services include “diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services” These services must be:
- Required by a chronically ill person
- Provided for by a licensed health care professional under a plan of care
You are considered chronically ill if within the previous 12 months, your doctor or other health provider says you meet one of the following:
- You are unable to perform at least two activities of daily living (ADLs: toileting, eating, dressing, bathing, continence, transferring) without “substantial assistance” from another person for at least 90 days, “due to loss of functional capacity.”
- You require “substantial supervision to be protected from threats to health and safety due to severe cognitive impairment (e.g. dementia/Alzheimer's).
Long-Term Care: Nursing Homes, Assisted Living, etc.
You can include medical expenses, cost of meals and lodging in one these facilities if the principal reason for being there is to get medical care. These expenses can be deducted for you, yourself or a dependent. However, if the reason for being in a care facility is personal, you cannot include the cost of meals and lodging. You can only include the cost of the medical expenses or nursing care. Another fee you can include is a “founders fee” or life-care fee. This is usually either an up-front lump sum fee or a monthly fee paid to a facility to insure you receive lifetime medical care.
Long-Term Care Insurance Premiums
If you pay premiums for long-term care insurance, you may be able to deduct this. See IRS Publication 502 for details.
Here are the long-term care premium limits you can deduct.
- Age 51 to 60 – $1,270
- Age 61 to 70 – $3,390
- Age 71 or over – $4,240
Nursing Services & In-Home Care
Expenses paid to a nurse(s) for care received in your home such as giving medication, bathing, grooming and other services that are generally provided by nurses. Nursing services can be provided in your home or another care facility. Other services such as personal and household services cannot be claimed as expenses. Let's say you pay a nurse $400 a week for medical and household services. If the nurse uses 20% of her time doing laundry and dishes, you can only claim $320 in weekly expenses (80% of $400 = $320). You can, however, claim your nurse's meal expenses. Other potential expenses include your increased rent, utilities, etc. associated with the services of a nurse. For example, if you moved to a larger home to accommodate a nurse.
Other Deductible Medical Expenses
The following are other potential medical deductions as listed by the IRS. Note that this is not a complete list.
- Ambulance Service
- Annual Physical Examination
- Artificial Limbs
- Artificial Teeth
- Capital Expenses (e.g. modifications to your home for medical reasons)
- Dental Treatment
- Diagnostic Devices (e.g. blood sugar monitor)
- Eye Exam, glasses, eye surgery
- Hearing Aids
- Hospital Meals and Lodging
- Medicare A (in some instances), Medicare B and D
- Oxygen Equipment
- Psychologist Fees
- Prescription Drugs
- Telephone for Hearing Impaired (TTY and TDD)
- Therapy (for medical treatment)
- Transportation (bus, car, taxi, train, airplane)