Are There Any Tax Benefits of Age-Restricted Housing for Retirees? Here’s What Experts Say
Seniors who move into nursing homes or other types of assisted-living centers are eligible for tax deductions based on medical needs and other factors. As with any tax break, you need to pay close attention to ensure you get the right ones.
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According to the IRS, in certain cases, nursing home expenses are deductible medical expenses. Here’s a quick breakdown:
If you, your spouse, or your dependent is in a nursing home primarily for medical care, then the entire nursing home cost (including meals and lodging) is deductible as a medical expense.
If that individual is in a home primarily for non-medical reasons, then only the cost of the actual medical care is deductible as a medical expense, not the cost of the meals and lodging.
The total amount of all allowable medical expenses equals the amount that exceeds 7.5% of adjusted gross income.
“The vast majority of the time, someone has been in skilled nursing because of a medical need. So that can be up to 100% deductible,” Xan Smith, chief financial officer at Goodwin Living, a not-for-profit senior living company based in northern Virginia, told U.S. News & World Report.
The rules are a little different for other types of age-restricted facilities. For example, if you move into an assisted living community, then part of your expenses go toward medical care, U.S. News reported. This might include a portion of the upfront fee as well as the monthly fee.
Furthermore, for medical care to be tax-deductible, an assisted living resident “must be chronically ill” and the care needs to be prescribed by a licensed healthcare provider or physician. Qualifying as chronically ill means that you require “substantial supervision and assistance” with at least two activities of daily living or have a severe cognitive impairment, such as Alzheimer’s.
In most circumstances you can’t deduct rent or the housing portion cost of assisted living.
“The facility should be able to provide you with a letter saying what percent of your initiation and monthly fees goes toward medical costs,” Jonathan Gassman, principal at Prager Metis CPAs in New York City, told U.S. News. “It is important to have this documentation, particularly if the IRS has any questions or you get audited.”
In the case of continuing care retirement communities (CCRCs), a “fairly sizable portion of the entry fee” and the monthly fee might be tax deductible as a medical expense, according to a blog on My LifeSite. That’s the case even when healthcare services are not being currently being received.
A separate blog from Intuit TurboTax noted that the CCRC entry fee is treated as a prepayment of future medical expenses and it is deductible in the year you paid it.
For more information, go to Publication 502, Medical and Dental Expenses on the IRS website. You can deduct medical expenses on Schedule A (Form 1040), Itemized Deductions.
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