Inside this Article:

Introduction

intro Tax issues for seniors are unique to their situations. Some seniors age at home, while others live in assisted or independent living. And, according to Pew Research, while most seniors are fully retired and living off their retirement, about 19% are still in the workforce.

This article aims to demystify the fundamental questions about tax deductions and obligations for seniors, whether they’re living in assisted communities, enjoying independent living, aging at home, or still earning income through work.

Whether aging at home or living in assisted living, medical bills are often a significant part of a senior’s life. But which of those expenses is tax deductible?

Which Medical Expenses are Tax Deductible?

medical exp Most medical expenses are tax deductible. Understanding the tax landscape starts with recognizing what the IRS defines as deductible medical expenses and how to deduct them.

The IRS defines deductible medical expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.”

This includes payments for legal medical services from your physicians, surgeons, dentists, and other medical practitioners. It also includes the costs of equipment, supplies, and diagnostic devices that your doctor or healthcare provider says are needed for these purposes. 

However, medical care expenses must primarily alleviate or prevent a physical or mental disability or illness. Expenses for general health, like vitamins or a vacation to the Bahamas, are not covered.

Allowed medical expenses also include the premiums you pay for insurance that covers the expenses of medical care and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. 

Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted. This includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease and for treatments affecting any part or function of the body.

Assisted Living and Memory Care Expenses

assisted living Assisted living can offer essential services for seniors requiring assistance with activities of daily living (ADLs).

The IRS allows deductions for long-term care services if such services are required due to a chronic illness and if the individual is unable to perform at least two activities of daily living. 

According to IRS Publication 502, deductible medical expenses may include part of the fees paid to an assisted living facility allocated to medical care, excluding costs paid for meals and lodging.

Independent Living and Tax Implications

Independent living communities are wonderful places for active seniors to live. They are often on the same campus as assisted living buildings, which helps in the continuum of care as seniors age and need help in the future.

While providing convenience and a robust community for seniors, the cost of the independent living residences is not a tax-deductible expense. However, certain specific healthcare services you receive at independent living may be covered.

If a senior incurs medical expenses while living independently, such as for home healthcare or outpatient services, these could be deductible following the same rules mentioned in IRS Publication 502.

Some Tax Ramifications of Aging at Home

In addition to the medical expense deductions, seniors aging at home may also deduct expenses for home modifications made for medical reasons.

Modifications can include entrance ramps, widening doorways, installing railings, or other alterations necessary to allow access to disabled individuals.

Additionally, the cost of maintenance and repairs for such modifications may be considered deductible medical expenses.

Fully Deductible Home Modifications 

home mod If an allowable medical expense does not increase the value of your house, it is fully deductible. While they must be medically required, some examples are: 

  • Ramps
  • Modified doorways and stairways
  • Altering cabinets
  • Railings and support bars
  • Outlets
  • Altered cabinets
  • Fixtures
  • Warning systems

The cost of maintaining and operating installed medically required equipment may also be deducted.

Not Fully Deductible Home Modifications

not refund home mod However, you cannot fully deduct medical equipment that increases the value of your home, like swimming pools. Generally, the amount you are allowed to deduct is the difference between the medical expense and the increase in the value of your home. 

So, if your doctor prescribes a pool for therapy, you should check with your tax expert before making those deductions.

Income Considerations for Working Seniors

considerations Seniors who continue to work face unique tax considerations. The Social Security Administration says that if you are under full retirement age for the entire year, the IRS will deduct one dollar in benefits for every two dollars you earn above the annual limit. 

This limit was $19,560 in 2023. Furthermore, IRS Publication 915 provides guidelines on how Social Security benefits are taxed, depending on your total income and filing status.

For seniors running their own businesses, IRS Publication 334 is a valuable resource for understanding tax deductions available, including potentially deductible business expenses that can lower taxable income.

Comparing the Options

Each living arrangement offers different tax implications and potential deductions. Assisted living and memory care facilities may offer the most direct route to medical expense deductions, while aging at home also offers opportunities for deductions related to home modifications. 

Independent living, while less directly associated with deductible expenses, may still offer opportunities for deductions based on individual circumstances.

Planning for the Future

at home Choosing where to age is different for every senior. While 90% of seniors prefer to age at home if possible, many will need help that is best delivered in an assisted living environment.

Most seniors decide where to live based on the driving forces of health, healthcare, and quality of life. However, seniors should always pay attention to allowable tax savings.

Effective tax planning requires a forward-looking approach, taking into consideration potential changes in income, health status, and living arrangements. Consulting with a tax professional, financial planner, or elder care attorney can provide personalized advice and strategies.

Next Steps

Navigating all the advantages and disadvantages of aging at home, independent living, and assisted living can be overwhelming. Tax considerations are just part of that equation.

Florida Senior Consulting believes that when you have all the needed information, you can make the decision best for you and your family.

If assisted living is right for your senior loved one, we have expert knowledge to help you decide which community is best for your unique needs.

And if you want to age in place in the comfort of your home, we developed the Comprehensive Aging in Place Plan™ to help you do so safely and effectively.

Get started now by calling (800) 969-7176 or visiting FloridaSeniorConsulting.com. We are here to help.

Senior living on your terms. The choice should be yours.

 

References and Further Reading

Contact Florida Senior Consulting

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