For older adults living with dementia or memory impairment, memory care is a form of senior living that can be life-changing for an aging parent. However, it does involve a price tag, and when tax season comes around, it’s natural to have questions.
Certain memory care expenses may be tax-deductible. However, to qualify, these costs must meet the IRS’s definition of medical expenses, and the services provided must be deemed medically necessary. If you’re ever unsure, speak with the community or an accountant so you can better prepare your taxes.
What Qualifies as Tax-Deductible Medical Expenses?
Not all health-related costs are created equal when it comes to deductions. The IRS has strict rules about what counts as a medical expense, but here’s a breakdown of what you should know.
First, medical expenses must exceed 7.5% of your adjusted gross income (AGI) for the tax year to qualify as tax-deductible. The eligible expenses include costs related to diagnosis, treatment, or prevention of diseases, alongside any services needed for bodily function. These include:
- Doctor visits
- Prescription medication
- Medical devices
- Certain long-term care services
If you have a loved one in memory care, keep a detailed record of any and all care expenses. Then, reach out to a qualified accountant in your area, and provide any necessary information. They can work closely with you to help you determine what is and isn’t tax-deductible.
How Memory Care Fits into Tax-Deductible Expenses
When it comes to memory care, deducting expenses can get a bit more complex. It all hinges on whether the care is deemed medically necessary.
Memory care is often considered a qualified expense—but only if it meets certain conditions. The care provided must directly address a medical condition such as dementia or Alzheimer’s disease. Here are some examples of services that could be deductible:
- Cognitive therapy designed to improve memory or mental function.
- Assistance with activities of daily living, like eating, bathing, or dressing, if a licensed healthcare professional prescribed these services.
- Portions of memory care community fees that are directly tied to medical or therapeutic care.
If a person lives in memory care to manage an eligible condition, the care services are tax-deductible. However, this varies by state, so always be sure to speak with a financial professional when filing your taxes.
Tax-Deductible vs. Non-Deductible Memory Care Costs
When reviewing your medical deductions, it’s important to separate deductible expenses from those that don’t meet the IRS criteria. You can follow these general guidelines:
Deductible Memory Care Costs
These expenses are considered deductible:
- Fees for nursing services, including cognitive and therapeutic programs.
- Physical therapy sessions to support health or mobility.
- Medical evaluations and treatments recommended by licensed healthcare providers.
- Portions of community living fees directly related to medical treatment.
- Assistance with activities of daily living.
Non-Deductible Costs
These expenses are not tax-deductible:
- General housekeeping or personal services unrelated to medical care.
- Over-the-counter medications not prescribed by a doctor.
- Cosmetic treatments or elective procedures.
Knowing which services are and aren’t covered makes planning significantly easier.
How to Claim Memory Care Deductions From Taxes
Before you file your taxes, make sure you’re prepared. This makes it easier to claim any memory care deductions you qualify for—and makes the overall process smoother. Try breaking things down into smaller, simpler steps.
Calculate Total Medical Expenses
The first step is to tally up all costs related to care services provided during the year. This could include:
- Community fees
- Therapy programs
- Medications
- Medical appointments
The IRS provides guidelines on allowable medical deductions, so you’ll want to reference their documentation to ensure accuracy.
Determine the Deductible Amount
Calculate your adjusted gross income (AGI) for the year. Then, subtract 7.5% from the total. Any qualified expenses that exceed this threshold are considered deductible. For example, if your AGI is $100,000, any expenses above $7,500 would apply toward deductions.
This percentage may change by year, so make sure to verify the current percentage.
Use the Correct Tax Form
When filing your taxes, you’ll need to itemize your deductions using Schedule A (Form 1040). This is where you’ll list all qualified expenses for the year, including those from memory care. If you skip this step and opt for the standard deduction, you won’t be able to claim them.
Keep Detailed Records
Meticulous record-keeping is key to successfully navigating potential IRS reviews. Save receipts, invoices, or medical statements that substantiate your claims.
Hold on to these documents:
- Receipts and invoices for all memory care expenses.
- Statements from healthcare providers detailing services received.
- Documentation from a licensed professional prescribing required long-term care.
Ideally, maintain this documentation for at least three years after filing your tax return, as that’s the period within which audits could occur.
A Team You Can Trust
Memory care can be a rewarding way to help a loved one in need. With a proper plan, you can set yourself up for a smoother, simpler tax season, and spend more time focusing on spending time with your loved one. And remember—you can always reach out to an experienced accountant or financial advisor to make it even easier.
Our team at Village at Belmar is here to help with any questions you may have. Whether you’re considering memory care for a loved one or looking to clarify any questions, we’re ready to help. Schedule a visit with us today, or contact our team to learn more!
