Medical Expense Deductions
Under the Tax Cuts and Jobs Act of 2017
The Tax Cuts and Jobs Act became effective January 1, 2018. The good news for elderly and disabled Hoosiers is this tax bill allows them to write off qualifying medical expenses that exceed 7.5% of their adjusted gross income for 2017 and 2018, regardless of their age. This limit increases to 10% in 2019.
The standard deduction increased to $12,000 for a single person and $24,000 for a married couple as of January 1, 2018. This means a person or couple will need high medical costs in order to qualify and take advantage of this deduction.
The cost of nursing home care usually creates a large medical expense deduction. This often allows a person to take funds out of a retirement account free of federal income tax. Please note Indiana does not recognize medical expense deductions. A list of common medical expenses is located at the end of this article.
Making Room and Board Costs for Assisted Living Care Tax Deductible
We represent many folks who are paying $3500 or more per month for room and board at an assisted living facility. We help make these costs tax deductible for many of our clients. This allows a medical expense deduction if the resident’s combined medical expenses are more than 7.5% of the resident’s adjusted gross income.
The resident must be certified as “chronically ill” for room and board expenses to be considered deductible medical expenses. This means a doctor, registered nurse, or certified social worker has to certify in writing that the resident either:
- Cannot perform at least two activities of daily living, such as eating, toileting, transferring, bath, dressing, or continence; or
- Requires supervision due to a congestive impairment (such as Alzheimer’s disease).
The resident must also have a plan of care prescribed by a licensed health care provider. Most assisted living facilities in Indiana prepare care plans for their residents. Room and board expenses are not deductible if they are reimbursed by insurance.
We encourage the families to obtain the necessary certification as soon as possible after a resident enters an assisted living facility. A new certificate must be signed each year. This certification does not get sent in with your tax return. This certification will be used if the tax deduction is questioned by the IRS.
A child can get a tax deduction if the parent (“qualifying relative”) resides in an assisted living facility or nursing home and the child provides more than half the cost of the resident’s care. When several family members help pay for the resident’s care, the children can enter into a “multiple support agreement” to determine which child gets the deduction for the current year. That child must pay more than 10 percent of the resident’s total support for the year, and with the other family members, collectively, must pay more than 50 percent of the resident’s support.
The qualifying persons who are not claiming the exemption must sign a Form 2120 (Multiple Support Declaration), which is attached to the tax return of the person claiming the exemption. Here are some examples from IRS Publication 501:
Example 1 – You, your sister, and your two brothers provide the entire support of your mother for the year. You provide 45%, your sister 45%, and your two brothers collectively provide 10%. Either you or your sister can claim an exemption for your mother. The other must sign a statement agreeing not to take an exemption for your mother. The one who claims the exemption must attach Form 2120, or a similar declaration, to his or her return and must keep the statement signed by the other for his or her records. Because neither brother provides more than 10% of the support, neither can take the exemption and neither has to sign a statement.
Example 2 – You and your brother each provide 20% of your mother’s support for the year. The remaining 60% of her support is provided equally by two persons who are not related to her. She does not live with them. Because more than half of her support is provided by persons who cannot claim an exemption for her, no one can take the exemption.
Example 3 – Your father lives with you and receives 25% of his support from Social Security, 40% from you, 24% from his brother (your uncle), and 11% from a friend. Either you or your uncle can take the exemption for your father if the other signs a statement agreeing not to. The one who takes the exemption must attach Form 2120, or a similar declaration, to his return and must keep for his records the signed statement from the one agreeing not to take the exemption.
See IRCS7702B for medical expenses which include “qualified long-term services” under IRCS213(d). Also see IRS publication 502 Medical and Dental expenses.
TIP: We often use this expense to offset the federal taxes on the surrender of a retirement account as part of the Medicaid planning process. Make sure the family includes all of the allowable medical expenses in addition to the cost of room and board. These expenses include, but are not limited to:
- Ambulance services
- Artificial limbs or teeth
- Assistive devices such as crutches, walkers, or wheelchairs
- Body scans
- Braille material for the visually impaired
- Breast reconstruction and a prosthetic breast(s) after mastectomy
- Dental health care
- Diagnostic devices you might use on your own, such as test strips and a glucose monitor
- Diapers or diaper services, if they are medically necessary
- Eyeglasses or contacts
- Hearing aids and maintenance
- Improvements to a car or residence to make it easier for you to drive or get around
- Insurance premiums, including Medicare B and D
- Medical conferences related to your condition
- Operations, as long as they are not elective cosmetic surgery
- Physical exams
- Some faith-based medical practitioners, such as Christian Science practitioners
- Some part of qualified long term care insurance premiums
- Telephone or television adapted for vision or hearing impairment
- The cost of a service animal and its care
- Transportation to and from medical care
- Transportation to and from substance abuse of alcoholism treatment programs, such as a 12-step program
- Vision exams and surgery
- Weight loss programs and certain types of prescribed weight loss diets, if they are medically necessary
Sorry, dancing lessons to try out for Dancing with the Stars are not deductible medical expenses.
Keith P. Huffman