Omar Bennett
Nursing home expenses can be a significant financial burden, but tax deductions are available for some of these costs. The Internal Revenue Service (IRS) allows deductions for medical expenses, which include nursing home care if the primary reason for residence is the availability of medical care. This includes room and board, medications, medical care, supplies, and transportation to medical appointments. When claiming these deductions, it is important to consider the specific requirements, such as the need for expenses to exceed 7.5% of the adjusted gross income (AGI) and the distinction between tax deductions and tax credits. Consulting with a tax professional is advisable to navigate the complexities of tax laws and maximize deductions.
| Characteristics | Values |
|---|---|
| Medical reasons for nursing home | Deductible as a medical expense |
| Non-medical reasons for nursing home | Only the cost of actual medical care is deductible |
| Qualifying medical expenses | Preventive, therapeutic, treating, mitigating, curing, or rehabilitative services |
| Deductible expenses | Room and board, medications, medical care and supplies, durable medical equipment, therapy services, transportation to medical appointments |
| Deductible insurance premiums | Long-term care insurance, health insurance, Medicare premiums |
| Deductible medical and dental expenses | Expenses exceeding 7.5% of adjusted gross income |
| Deductible expenses for Alzheimer's care | Out-of-pocket medical expenses for families caring for a loved one with Alzheimer's disease at home |
| Deductible expenses for long-term care | Cost of admission to medical conferences related to chronic illness |
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What You'll Learn
Deducting nursing home costs for medical reasons
The cost of nursing homes is considered a medical expense and is deductible on federal tax returns in certain instances. If you, your spouse, or your dependent is in a nursing home primarily for medical care, then the nursing home cost not compensated for by insurance (including meals and lodging) is deductible as a medical expense. If the individual is in a home primarily for non-medical reasons, only the cost of the actual medical care not compensated for by insurance is deductible, not the cost of meals and lodging.
The IRS defines medical expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” Medical expenses include, but are not limited to, medical services provided by doctors, dentists, and other medical providers, long-term care services, such as help with activities of daily living (ADLs), and premiums paid toward insurance that covers medical expenses.
To deduct medical expenses, you must itemize your deductions. However, if your expenses are not more than 7.5% of your AGI (Adjusted Gross Income), the standard deduction may be a better option. Generally, most nursing home residents must file a tax return. Only people whose gross annual income is less than $14,600 are exempt from filing.
Additionally, to qualify for a deduction, personal care services must be provided pursuant to a plan of care prescribed by a licensed health care practitioner. Many nursing homes have a licensed nurse or social worker who prepares a plan of care in coordination with the resident's physician, outlining the specific daily services the resident will receive.
It is important to note that tax deductions and tax credits are not the same. A credit reduces your tax liability dollar for dollar, while a deduction reduces your taxable income and, consequently, your tax liability by the percentage of your tax bracket. Consulting with an accountant or tax attorney about the tax implications of taking the medical expenses deduction is always recommended.
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Deducting nursing home costs for non-medical reasons
The cost of being in a nursing home is typically considered a medical expense and is deductible on a federal tax return. The Internal Revenue Service (IRS) defines medical expenses as "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body."
When an individual is in a nursing home for medical reasons, their room and board, medications, medical care and supplies, durable medical equipment, physical and occupational therapy services, and transportation to medical appointments are considered deductible medical expenses. However, when someone is in a nursing home primarily for non-medical reasons, only the cost of their actual medical care that is not compensated for by insurance is deductible as a medical expense. This means that the costs of meals and lodging are generally not deductible in such cases.
To deduct nursing home expenses for non-medical reasons, it is important to understand the requirements and limitations. Firstly, the individual for whom the nursing home costs are being claimed must meet the criteria to be considered a dependent on the tax return. This typically includes factors such as the individual's gross income, filing status, and their relationship to the taxpayer. Secondly, only unreimbursed and out-of-pocket medical expenses that exceed 7.5% of the taxpayer's adjusted gross income (AGI) can be deducted. For example, if the AGI is $38,000, the entire amount of medical expenses exceeding $2,850 can be claimed. It is worth noting that these deductions are subject to age-related caps set by the IRS.
Additionally, it is important to consult the specific rules and regulations of the state where the nursing home is located, as these may vary. While most states offer a medical expense deduction, seeking guidance from a tax professional or referring to Publication 502, Medical and Dental Expenses, can provide clarity on what constitutes a deductible medical expense for non-medical nursing home costs.
Furthermore, it is worth noting that the IRS allows limited tax breaks on insurance premiums related to long-term care. Private insurance premiums for long-term care insurance may qualify for a tax deduction, but only for expenses not covered by insurance. The cost of admission to medical conferences related to a chronic illness causing the need for long-term care may also be deductible, excluding meals and lodging expenses.
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Qualifying for tax deductions
Nursing home expenses are deductible on federal tax returns in most cases. However, the specific circumstances of the individual in the nursing home and the person claiming the deductions are important factors that determine eligibility.
If you, your spouse, or your dependent is in a nursing home primarily for medical reasons, then the nursing home cost not compensated for by insurance is deductible as a medical expense. This includes meals, lodging, medications, medical care, supplies, durable medical equipment, physical and occupational therapy services, and transportation to medical appointments. If the individual is in the nursing home primarily for non-medical reasons, only the cost of the actual medical care not compensated for by insurance is deductible.
To qualify as a dependent on your federal tax return, the person must be your dependent at the time they received the medical services or when you paid for them. Additionally, their gross income should not exceed the limit for the given tax year. For 2024, the limit was $5,050. They should not have filed a joint tax return, and they should not be claimed as a dependent on someone else's return.
To claim deductions, you must itemize them on Schedule A (Form 1040). You can deduct 100% of the medical expense portion of nursing home care that exceeds 7.5% of your adjusted gross income (AGI). For example, if your AGI is $38,000, you can claim all medical expenses that exceed $2,850.
Medically necessary nursing home care is often covered, at least in part, by Medicare, Medicaid, long-term care insurance, and/or veterans' benefits. Some states also offer specific medical expense deductions, but the rules vary, so it is always recommended to consult a tax professional.
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Tax deductions vs tax credits
Nursing home expenses are deductible from taxes in certain circumstances. If you, your spouse, or your dependent is in a nursing home primarily for medical reasons, then the nursing home cost not compensated for by insurance (including meals and lodging) is deductible as a medical expense. If the individual is in the nursing home for non-medical reasons, then only the cost of the actual medical care is deductible.
Now, what is the difference between tax deductions and tax credits? Both reduce your tax bill but in different ways. A tax credit is applied against your tax liability and works as a dollar-for-dollar reduction of your tax liability. For example, if your tax liability is $1500, a $500 credit brings it down to $1000. A tax deduction, on the other hand, is applied against your taxable income. It reduces how much of your income is subject to taxes. For example, if your income is $50,000, a $1000 deduction reduces your taxable income to $49,000.
There are two types of tax deduction strategies: taking the standard deduction or itemizing. The standard deduction is a one-size-fits-all reduction in the amount of your income that is subject to tax. You don't have to do anything to qualify for the standard deduction or provide any documentation. The amount varies depending on your filing status. For tax year 2022, the standard deduction allowed was anywhere from $12,950 (single filers) to $25,900 (married filing joint filers). Itemized deduction is an alternative to the standard deduction. If you have allowable deductions, such as mortgage interest, charitable donations, state income taxes, and real estate taxes, and the total of these deductions is above the standard deduction, you'll want to itemize so you pay less tax.
Some tax credits are refundable, such as the Earned Income Tax Credit or the Child Tax Credit. A refundable credit means that if you qualify for a larger credit than your actual tax bill, you will be allowed the full credit and should expect to see a refund. Some tax credits are non-refundable. In this case, if the credit amount is more than your tax bill, the excess credit won't result in a refund check but could reduce your tax bill to zero.
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Deducting long-term care insurance premiums
Nursing home expenses are deductible on federal tax returns in most cases. The IRS defines medical expenses as "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body." If a person is in a nursing home for medical reasons, their room and board, medications, medical care, and supplies are considered deductible medical expenses.
Long-term care insurance premiums are considered a medical expense. Individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves, their spouse, or any tax dependents as a personal medical expense. The yearly maximum deductible amount for each individual depends on the insured's attained age at the close of the taxable year.
To qualify for a deduction, personal care services must be provided pursuant to a plan of care prescribed by a licensed health care practitioner. In order to take advantage of deductions, a taxpayer must be entitled to itemize his or her deductions. Additionally, long-term care services and other unreimbursed medical expenses must exceed a certain percentage of the taxpayer's adjusted gross income (AGI). This threshold has changed over time, from 7.5% in 2016 to 10% in 2017.
Some LTC insurers offer shared care policies, where two people share one pool of benefits. This may be used to maximize the eligible tax deductibility when there is an age difference between spouses. Long-term care insurance premiums may also be paid from a Health Savings Account (HSA) up to certain limits.
It is important to consult with a tax professional or refer to the relevant IRS publications for the most accurate and up-to-date information regarding tax deductions for long-term care insurance premiums.
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Frequently asked questions
Deductible nursing home expenses include room and board, medications, medical care and supplies, durable medical equipment, physical and occupational therapy services, and transportation to medical appointments.
According to the IRS, deductible medical expenses include "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body."
Non-deductible nursing home expenses include the cost of meals and lodging while attending a medical conference, and the portion of insurance premiums treated as paid by an employer.
