Is There a Tax Deduction for Memory Care Facility Costs?
Reviewed by: Dr. Brindusa Vanta, MD
It's easy to disregard forgetfulness as a part of aging, but sometimes, it's a sign of more. Caring for a parent or loved one with Alzheimer's disease or another form of dementia can be trying, even disregarding the financial obligations and how to afford them. It's hard watching someone you know lose their ability to care for themselves, and it can be even harder to place them in a memory care facility, even when you know their needs are being met. However, there's help available. Tax deductions can help mitigate some expenses associated with memory care, but understanding which ones can and can't be deducted can be confusing.
This guide explains the basics you need to know about tax deductions for memory care facility costs. It seeks to take the confusion of navigating the tax system off your plate so you can focus on what matters most — making memories and enjoying time with your loved one. As you read, you'll learn how to qualify for memory care tax deductions, whether a parent can be claimed as a dependent on your taxes, how to determine which expenses are eligible to be deducted and how to calculate memory care tax deductions.
How Do You Qualify for Memory Care Tax Deductions?
The IRS defines some long-term care services, such as what would be received in a memory care facility, as tax-deductible. To qualify, your loved one's admission into a facility must be considered medically necessary, which the IRS defines as being "diagnostic, preventative, therapeutic, curing, treating, mitigating [or] rehabilitative services," or they must be for maintenance or personal care for specifically qualified individuals.
Expenses may be deductible if they're required by a chronically ill individual or are pursuant to a plan of care made by a licensed medical professional. To be deemed chronically ill, your loved one must require assistance with at least two activities of daily living.
Assistance With Two or More ADLs
Using the IRS guidelines, activities of daily living can include eating, transferring, toileting, dressing, bathing and continence. Seniors who require assistance with at least two of these activities must have their needs certified by a health care practitioner. Another way to qualify under this designation is to require significant supervision for safety due to cognitive impairment, such as a senior having Alzheimer's disease or other forms of dementia and being at risk of harming themselves or others, intentionally or otherwise.
Professional Care Plan
If medical professionals have certified that memory care best suits your senior loved one's needs due to their requirements for assistance, those care expenses may become tax-deductible. This will require a professional care plan dictating these requirements.
This care plan will be created after a cognitive assessment by a licensed medical professional, such as a physician, nurse practitioner, clinical nurse specialist or physician assistant, to determine what kinds of care a senior may need. Often, primary care physicians will refer patients with memory loss concerns to a specialist, such as a neurologist, psychiatrist, psychologist or geriatrician specializing in dementia care for the assessment and diagnosis process. If a diagnosis is made or there are concerns that symptoms may progress to a diagnosis of Alzheimer's or dementia, seniors will need regular follow-ups, typically once per year, to ensure the care plan continues to meet their needs as the condition advances.
Can You Deduct a Loved One's Memory Care Expenses From Your Taxes?
When filing your annual taxes, you're allowed to deduct certain medical expenses for yourself, your spouse and your dependents. Most of the time, dependents are your minor children for whom you provide at least 50% of their care and support, but if you provide support and care for a parent or other loved one, they may also be deemed as your dependent, provided they meet certain criteria. Through the Child and Dependent Care Expenses credit, you may deduct additional medical expenses, including those for a parent or other loved one you may be responsible for.
Criteria to Claim Parent as a Dependent
To claim a parent or another loved one as a dependent, they must meet several criteria, including:
- They must be unable to care for themselves physically or mentally, meaning they cannot complete activities of daily living without assistance or require constant supervision to prevent themselves from harming themselves or others.
- They must have lived with you for more than half the year or qualified as a relative who doesn't have to live with you. These include parents, grandparents, direct ancestors, siblings, children, nieces, nephews or direct in-laws.
They also must meet at least one of the following:
- They were your dependent for the year.
- They would have been your dependent for the year, but:
- They had income totaling more than $4,400 for the year.
- They filed a joint return.
- You qualified as a dependent on someone else's return for the year.
If your parent or loved one qualifies under these criteria, you may be able to claim them as a dependent on your taxes, which can allow you to deduct the medical and memory care expenses you may be responsible for.
What Memory Care Expenses Are Tax Deductible?
Not all memory care expenses are tax-deductible, but many of them are if your loved one requires admission into a facility for their safety and well-being. This list isn't exhaustive but includes the most common tax-deductible expenses associated with memory care.
Tax-Deductible Memory Care Services
- Meals and residency fees, as long as it's a medically necessary stay
- Entrance fees, as long as it's a medically necessary stay
- Any medically necessary treatments and therapies
Other Tax-Deductible Memory Care Expenses
- Medications
- Health insurance premiums
- Transportation for medical care
- Dental care
- Diagnostic devices
- Hospital services
- Long-term care insurance premiums, provided they don't reimburse for items reimbursed by Medicaid, don't have a cash surrender value and are guaranteed renewable.
Memory Care Costs That Are Not Eligible for Tax Deductions
- Expenses under 7.5% of your annual gross income
- Medical expenses paid during another tax year
How to Calculate Your Memory Care Tax Deductions
Calculating an exact memory care tax deduction can be difficult, and it's a good idea to speak to a tax professional to make sure you deduct everything you can. However, there are some guidelines you can follow to calculate an estimate of what you can deduct.
Start by creating an itemized list of any eligible expenses. If you can, record these throughout the year so you don't have to sift through as much information come tax time to find the eligible expenses. Add all of these expenses together.
Expenses exceeding 7.5% of your annual gross income (AGI) are considered tax deductible. To calculate this, you use the following equation:
AGI x 0.075
From there, you can calculate the estimated total tax deduction. To do so, use the following equation:
(Total deductible expenses) - (Your AGI x 0.075) = Total tax deduction
Remember, tax professionals have all the relevant information and can walk you through which expenses can and cannot be deducted. They will also be able to maximize your deductions, which can save you money, even if you have to pay for their services. Having your calculations and expenses reviewed by a tax professional before submitting them is recommended to avoid a lengthy (and potentially costly) audit.
