Is Memory Care Tax Deductible? Requirements, Eligible Expenses, and Tax-Prep Tips

According to the Internal Revenue Service (IRS), certain memory care expenses, such as medical care, meals, and lodging, may be deductible when your loved one who has dementia is considered chronically ill and when the expenses are for services that are considered medically necessary.^[01] A licensed health care professional must certify your loved one as chronically ill on an annual basis based on these requirements:^[02]

• A person who’s unable to perform at least two activities of daily living (bathing, dressing, etc.) for at least 90 days; or
• A person who requires substantial supervision due to cognitive impairments (Alzheimer’s disease or another type of dementia)

To deduct medical expenses, taxpayers must itemize their deductions. Itemizing medical deductions can lower the amount of taxes owed and result in a larger refund than a standard deduction, if those out-of-pocket costs exceed 7.5% of your adjusted gross income (AGI) and if they haven’t been reimbursed, such as by private or publicly funded insurance programs.^[03]

Keep in mind that itemizing medical deductions may not always save you more than claiming the standard deduction.

Merely having a diagnosis of dementia or Alzheimer’s doesn’t automatically make expenses related to a person’s care deductible. As mentioned, medically necessary expenses are deductible on a federal tax return when:

• Out-of-pocket costs exceed 7.5% of the filer’s AGI
• The expenses haven’t been reimbursed by a health insurance plan, whether private or publicly funded, such as Medicare, Medicaid, or veterans benefits.

Medical care, meals, and lodging at a memory care community may be tax deductible if your loved one meets the IRS definition of chronically ill and resides there primarily to receive medically necessary care.

If a person who has dementia doesn’t qualify as chronically ill, medical expenses provided in their memory care facility can still be tax deductible, including:^[03]

• Prescription medication
• Transportation for medical appointments
• On-site nursing services
• On-site medical appointments

Expenses for services and products that aren’t part of a doctor’s care plan and aren’t considered medically necessary aren’t deductible, such as social activities and room and board in an assisted living or memory care community if the sole reason for living there is to ensure a senior’s safety.

Deductible and nondeductible memory care costs

Can you afford memory care?

A senior who is paying for their own care in a memory care facility can deduct qualifying expenses from their taxes. A family member who is financially supporting a parent’s care in a memory care facility may also deduct unreimbursed medical expenses on their return as long as the parent is considered a “qualifying relative” defined by the IRS.

A family member can claim a parent as a dependent or qualifying relative, if they meet these standards:^[04]

• The family member must not be a dependent of another taxpayer.
• The family member must have paid half of the parent’s support for the tax year.
• The parent must be a U.S. citizen or legal resident.
• The parent’s gross annual income cannot exceed $5,200.

To calculate your total medical expense tax deduction, follow the steps in this example:

Calculate 7.5% of your AGI

$80,000 × 0.075 = $6,000

Subtract that amount from total medical expenses

$18,000 − $6,000 = $12,000

Determine your deductible amount

You may deduct $12,000 in qualified medical expenses.

Moving into memory care may make your loved one eligible for additional medical expense deductions and other tax benefits, depending on your family’s financial and caregiving circumstances.

Keep careful records and request itemized receipts throughout the year so you can easily tally up qualifying expenses and demonstrate that you meet the IRS’s requirements.

Expert advice for affordable memory care

To prepare for tax season, Denise Lettau, an attorney with over 15 years of experience in the wealth management industry, recommends asking your loved one’s memory care community for the following:

• Detailed and itemized invoices, specifically a breakdown of all medical expenses, room and board, and any other costs
• Documentation of medical necessity, which may be found in the care plan or provided by a physician
• The facility’s Taxpayer Identification Number (TIN)

“Sometimes facilities can’t provide an itemized explanation of benefits (EOB),” Lettau says. “Instead, they may state how much of the monthly rate covers room and board, and how much covers care services. Also, look at the signed resident agreement, because some provide a breakdown of services.”

The IRS makes resources available online, including free tax forms and publications detailing a variety of credits and deductions. If you think you may qualify for any of these credits and deductions, consult a tax professional to ensure compliance with IRS rules.

It’s also important to remember that a memory care community is only one long-term care option available for a loved one who has dementia. In-home dementia care or memory care in a nursing home may be more appropriate options depending on your loved one’s needs.

A Place for Mom’s trained Senior Living Advisors are available to provide guidance on financing memory care and exploring long-term care options for a loved one with dementia, all at no cost to your family.