The Tax Deduction for People with Dementia

Mary (A2891862x7A575)April inevitably means tax time, so whether or not you need to file a return, this tends to be the season when you, and everyone else, think about deductions and techniques you might use to reduce the amount of tax owed to Uncle Sam and the Commonwealth of Massachusetts.  It is common knowledge that if you itemize deductions, you may be able to deduct the medical expenses you pay each year.  If your spouse, parent, or other loved one has dementia, and you are now experiencing the incredible costs associated with caring for that person, you need to know whether and under what circumstances those expenses can be taken as medical deductions and how those deductions can help you.

The Internal Revenue Code defines medical deductions as including “qualified long-term care services as defined in I.R.C. sec. 7702B(c)”.  How in the world do you figure out what is qualified?  Actually, that is fairly straightforward.  The services need to be:  “…necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services”, which (A) are required by a chronically ill individual, and (B) are provided pursuant to a plan of care prescribed by a licensed health care practitioner.”

You should notice a couple of things about this standard.  First and foremost, it covers “personal care”.  That includes home care, the kind of care that those with dementia so often need and that programs to help them so often don’t cover.  Second, the plan of care can be by any “licensed health care practitioner”, which could include a qualified nurse in addition to a doctor.

At this point you may be saying to yourself:  why should I care about this?  My spouse and I hardly pay any taxes.  But it may affect you in a different way.  Let me make three observations:

  1. If you have a tax-deferred IRA, 401(k) or other funds that you have not been touching because you did not want to pay income taxes when you withdrew the money, now may be the time to withdraw some of those funds. If the “qualified long-term care services” more or less offset the withdrawal of retirement assets, you may be reducing or eliminating the tax you owe on them. In effect, you are really stretching your savings.
  2. What if you are making these payments on behalf of one of your parents and those payments constitute over 50% of the total living expense of that parent for the year? Those payments may be deductible by you on your own tax return.
  3. If the person needing the care is living in an assisted living community and the principal reason why the person is living in that community is to obtain that care, then the entire monthly assisted living bill may be deductible as a medical deduction.|

    As these are very complicated tax strategies, you will want to consult your accountant or a qualified tax attorney before implementing them. Given the unbelievable cost of these services, though, you need to consider all strategies that can help you reduce the burden. In some cases, good elder law advice means good tax advice.Duck


About Arthur Bergeron

Art has been practicing law in Massachusetts for over 30 years. He focuses his practice on elder law, estate planning, probate and trust administration, and land use matters. Art counsels senior citizens and their loved ones regarding elder law and special needs planning, asset protection and Medicaid planning. He works with individuals in all areas of estate planning, including wills, trusts, durable powers of attorney, health care proxies and living wills.
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