If you or your spouse is chronically ill, here are four quick tips to consider if you itemize deductions on your income tax returns:
- LONG TERM CARE INSURANCE PREMIUMS ARE USUALLY DEDUCTIBLE. They are part of your medical expense deduction. While there is a cap on the amount, the cap goes up with age and is over $5,000 if you are over 70.
- MOST OF YOUR COST OF STAYING AT HOME IS DEDUCTIBLE IF YOUR ARE CHRONICALLY ILL. If you need substantial assistance with at least two of the activities of daily living (eating, toileting, transferring, bathing, dressing) or need “substantial” supervision for your safety (and have needed it for at least 90 days), then the cost of your care, including home care services, is deductible. That can be especially important if you have tax-deferred accounts that you did not want to use because of the cost of taking a withdrawal. By using those funds to provide for this care, you are basically withdrawing them tax-free.
- MONTHLY ASSISTED LIVING BILLS MAY BE TAX-DEDUCTIBLE IF YOU ARE CHRONICALLY ILL. If you are “chronically ill” and your doctor certifies that you need to live in an assisted living community because of your illness, the entire cost of assisted living may be deductible as a medical expense. Once again, this may be important if you are paying for the assisted living with tax-deferred funds or with low basis assets which might otherwise be subject to income tax on capital gain.
- IF YOUR CHILD PAYS YOUR ASSISTED LIVING OR HOME CARE BILLS, THE CHILD MAY BE ABLE TO DEDUCT THE EXPENSE. If your child contributes more than 50% of your living expense in any year, then your child may take your medical expenses as his or her medical deduction.
If you must pay for the cost of being chronically ill, it might be helpful if you can get a tax deduction for it. However, in order to obtain a tax benefit for medical expenses, you must itemize deductions. In order to itemize, your deductions must exceed $12,000 if single, $24,000 if married. Also, your medical deductions are reduced by 7.5% of your Adjusted Gross Income before you get the benefit of the medical expense.
If you need more information on this, you can contact me at (508) 860-1470 or firstname.lastname@example.org. You can also view my 10-minute Q&A Fireside Chats on Frank and Mary’s YouTube Channel, www.youtube.com/elderlawfrankmary.