Examples of deductible long-term care expenses

QUALIFIED LONG-TERM CARE SERVICES

• Under HIPAA, the costs of providing "qualified long-term care services" for a "chronically ill individual" are deductible as a medical expense.  Qualified expenses are deductible whether provided in a facility or in a private residence.

Qualified long-term care services means:

• Necessary diagnostic, preventative, therapeutic, curing, treating, mitigating,  rehabilitative services, and maintenance and personal care services which are required by a chronically ill individual, and

• Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Chronically ill individual

• The dependent relative is "chronically ill" under the Internal Revenue Code if within the previous 12 months he or she has been certified by a licensed health care practitioner as:

• Being unable to perform (without substantial assistance from another individual) at least two activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) for a period of at least 90 days due to a loss of functional capacity,

• Having a level of disability similar to the level of disability described above, or

• Requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.

NURSING HOME EXPENSES 

• In addition to "qualified long term care services," a taxpayer can deduct as a medical expense the costs of medical care received by a dependent in a nursing home or home for the aged. This expense can include the cost of meals and lodging in the home if the main reason for the individual’s being there is to receive medical care. However, if the reason for the individual being in the home is personal, the part of the cost allocable to medical or nursing care is deductible, but the cost of meals and lodging is not.

CAPITAL EXPENSES

• If the dependent is living with the taxpayer, a medical expense deduction is available for amounts paid for special equipment installed in the taxpayer’s home or for improvements, as long as their main purpose is medical care for the dependent. The cost of permanent improvements that increase the value of the property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of the property. The difference is a medical expense. If the value of the property is not increased by the improvement, the entire cost is included as a medical expense.

• Certain improvements, if made to accommodate the taxpayer’s home to the disabled condition of the dependent individual who is living with the taxpayer, do not usually increase the value of the home, and thus their cost can be fully included as a medical expense. Examples of such improvements include:

•  constructing entrance or exit ramps for the taxpayer home;
•  widening doorways at entrances or exits to the taxpayer home;
•  widening or otherwise modifying hallways and interior doorways;
•  installing railings, support bars, or other modifications to bathrooms;
•  installing porch lifts and other forms of lifts but generally not elevators;
•  modifying stairways;
•  modifying areas in front of entrance and exit doorways; and
•  grading the ground to provide access to the residence

•  Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not deductible.

LIFETIME CARE - ADVANCE PAYMENTS

•  The taxpayer can include in the medical expense deduction a part of a life-care fee or founder's fee the taxpayer pays either on a monthly basis or as a lump sum under an agreement with a retirement home. The deductible part is limited to the amount properly allocable to the dependent’s medical care. The agreement must require the taxpayer to pay a specific fee as a condition for the home's promise to provide lifetime care for the dependent that includes medical care.

NURSING SERVICES

•  Wages and other amounts paid for nursing services provided to a dependent can also be included in the medical expense deduction. Nursing services need not be performed by a nurse, as long as the services are of a kind that a nurse would generally perform. This would include services connected with caring for the individual’s condition, such as giving medication or changing dressings, as well as bathing and grooming. These services can be provided in the home or at another care facility.

• However, the deduction is not permitted if the caregiver is the dependent's spouse, lineal descendant, brother, or sister.  See IRC §§ 213(d)(11) and 152(d)(2).

• Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, these amounts must be divided between the time spent performing household and personal services and the time spent on nursing services.

• Part of the amount paid for that attendant's meals are also deductible. Additional amounts paid for household upkeep on account of the attendant can also be included as a medical expense.

EMPLOYMENT TAXES

•  The taxpayer can include as part of the medical expense deduction any social security tax, FUTA, Medicare tax, and state employment taxes the taxpayer pays for a nurse, attendant, or other person providing medical care to the dependent.

DEDUCTION FOR LONG-TERM CARE INSURANCE PREMIUMS

•  The Internal Revenue Code includes in the definition of deductible medical expense the cost of "eligible long-term care premiums" paid under a "qualified long-term care insurance contract."

•  While "eligible long-term care premiums" are now deductible, they cannot exceed the limitations determined under the following table for 2010:

 

Attained Age Before 12/31/2010:

Deduction Limitation Is:

40 or less	$330.00
More than 40 but not more than 50	$620.00
More than 50 but not more than 60	$1,230.00
More than 60 but not more than 70	$3,290.00
More than 70	$4,110.00

              

NEXT:  Credit for Dependent Care Expense

DISCLAIMER

Martin J. Hagan is licensed to practice law in the Commonwealth of Pennsylvania. This website is intended solely for informational use and is not intended to solicit clients. Likewise, any information contained in or obtained from this web site is for informational purposes only and is not intended to be used as legal advice.

IRS CIRCULAR 230 DISCLAIMER:   Pursuant to Treasury guidelines, any tax advice contained in this website (or any link from it) does not constitute a formal opinion. Accordingly, any tax advice contained in this website (or any link from it) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be asserted by the Internal Revenue Service. You should seek advice based on your particular circumstances from an independent tax advisor.

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Last Updated: 02/07/12