Reed: Long-term care expenses provide significant tax deduction

Sandra W. Reed
Sandra Reed

James’s wife, June, has been in a nursing home for which they are paying $5,000 a month for the past five years. They have sufficient income to obtain June’s care without Medicaid. In fact, they have sufficient assets that would prevent them from qualifying for Medicaid. Can the couple deduct the payments to the nursing home when they file their tax return?

Medical requirements to deduct nursing home expenses

If the nursing home payments qualify, James and June can deduct all the cost of her case there as medical expenses. For the expenses to qualify, a licensed health care practitioner must have certified as a “chronically ill person” and the nursing home placement must be pursuant to a plan prescribed by a licensed health care practitioner.

According to federal guidelines, a “chronically ill individual” must (1) "require substantial supervision” to protect them due to “severe cognitive impairment;” or (2) be unable to perform at least two activities of daily living by themselves due to loss of functional capacity for at least 90 days. June, who suffers from memory loss due to dementia, meets these requirements.

Income requirements for deducting the cost of long-term care

The deduction of medical expenses is available only if the taxpayer itemizes deductions and to the extent of those medical expenses, including those for long-term care, that exceed 7.5% of adjusted gross income.

In James and June’s case, adjusted gross income is $100,000. This includes their Social Security benefits, James’ pension and the income and dividends from their investments. Since the cost of the nursing home is $60,000, they easily meet that threshold. They can deduct the entire cost of June’s care, as well as any other non-reimbursed medical expenses paid for either of them during the year. They may owe no tax at all after taking this deduction.

James and June failed to seek this deduction until this year. They can remedy this omission by filing for a refund for the last three years using the IRS filing form 1040X. They will not be able to get a refund for any year prior to that.

CAVEAT: Be sure to deduct the cost of nursing homes, assisted living facilities and home health care as allowable medical expenses. These are much-overlooked deductions.

Sandra W. Reed practices Elder Law in Somervell County, handling probating of estates, drafting of wills, trusts, powers of attorney and deeds as well as estate and Medicaid planning.  She lives on beautiful Chalk Mountain and can be reached at (254) 797-0211; (817) 946-2809 or at sreed@kbzlaw.com.