Deducting Assisted Living Facility Costs

The Internal Revenue Code provides an income tax deduction for medical expenses which include “qualified long-term services”¹. However, the IRS provides special rules on deducting qualified long-term care costs as medical expenses. While the costs of a skilled nursing home should be deductible, the deductibility of the costs of an Assisted Living Facility (ALF) is less certain.

Deductible qualified long-term care costs in an ALF are defined as necessary rehabilitative services, maintenance or personal care services (defined later) that are:

• 1. Required by a chronically ill individual and
• 2. Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Not all residents of ALFs can qualify as a chronically ill individual for medical expense deduction purposes. An individual is chronically ill only if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions:

• 1. He or she is unable to perform at least two activities of daily living (ADLs) without substantial assistance from another individual for at least 90 days due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
• 2. He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.²

The Congressional Conference Report for Section 7702B states: “It is intended that an individual who is physically able, but has a cognitive impairment such as Alzheimer’s disease or other form of irreversible loss of mental capacity, be treated similarly to a person who is unable to perform at least two activities of daily living.” ²

Maintenance or personal care services are care which has as its primary purpose the providing of needed assistance for a chronically ill individual with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairments). Thus, if an ALF resident needs substantial help with bathing and dressing (two ADLs), then the ALF’s provision of such assistance qualifies as personal care services.

There is a potential trap in that certification of the chronic illness requirement must have been accomplished at some time within the preceding 12 months.

The “licensed health care practitioner” who can perform the certification requirement includes any physician, registered professional nurse, or licensed social worker.³ There is no requirement that the licensed health care practitioner be an employee of the ALF, although the licensed practitioner could be. The licensed practitioner certainly must personally examine the taxpayer and prepare a written opinion. An acceptable licensed practitioner could be the taxpayer’s primary care physician or a registered nurse or licensed social worker on staff with an Elder Law Firm or on contract with such Firm.

The Code does not define what a “plan of care” is. For skilled nursing facilities, a written plan of care for each patient is a federal statutory requirement. Although there is no similar federal requirement mandating that ALFs prepare a written plan of care, most ALFs do prepare such plans. As with the certification of chronic illness test, a plan of care must be prescribed by a licensed health care practitioner which includes a physician, registered nurse or licensed social worker.

In summary, the test for deducting ALF costs requires the following:

• 1. There must be a plan of care prescribed by a licensed health care practitioner.
• 2. The patient must be a chronically ill person who either needs substantial assistance with two or more ADL’s or requires substantial supervision due to severe cognitive impairment.

If these requirements are satisfied, then 100% of the costs (including room and board) of the ALF are deductible on Schedule A of Form 1040 to the extent such costs are not reimbursed by insurance or government benefits.

If a patient cannot satisfy the above test, the patient can still deduct under IRC Section 213 the percent of the ALF costs which are attributed to nursing services⁴ but not the percent attributed to room and board and personal services. Nursing services are of a kind generally performed by a nurse in connection with caring for the patient’s condition and include bathing and grooming the patient. The ALF in question should provide its’ estimate of the deductible nursing services portion of the bill and that statement should be attached to Schedule A. A typical_, percent range attributed to deductible nursing services in an ALF is 30% to 40%.

In order to prospectively secure the deduction, the opinion of a doctor, nurse or social worker on the chronic illness issue should be obtained before admission and a written plan of care should be prepared at or soon after admission by a doctor, nurse or social worker.

A taxpayer can claim an itemized deduction for unreimbursed medical expenses to the extent such expenses exceed 7.5% of adjusted gross income (AGI).⁵ Qualified long-term care services, insurance premiums, and other eligible medical expenses may be aggregated together to exceed 7.5% of AGI.⁶

There is some disagreement amongst tax professionals as to the ability to deduct long term care costs as medical expenses, so you should always consult your own tax professional before doing so. If you do not have a tax professional, our firm can recommend one to you.

• 1. I.R.C. 4213(d).
• 2. I.R.C. §7702B.
• 3. I.R.C. §7702B (c)(4).
• 4. IRS Publication 502, page 12 (2007); such expenses would not be deductible under IRC 47702B but rather under IRC §213. See also Treas. Reg. §1.213- 1(e)(1)(v) which provides that when a patient’s condition is such that the availability of medical care in the institution is not a “principal reason for his presence there, only that part of the cost of care in the institution as is attributable to medical care shall be considered as a cost of medical care.”
• 5. I.R.C. §213(a).
• 6. I.R.C. §213.

Source: NAELA News, Robert C. Anderson, LL.M. Taxation, CELA,, “How to Deduct Assisted Living Facility Costs” (2008).