Medical Expense Deductions

A long term care stay can actually provide a family with a large income tax benefit. All funds paid to a third party who is providing health related long term care in the home can be fully tax deductible. A stay in a nursing home is also totally income tax deductible since one's room and board is incidental to the care provided to the senior citizen. On the other hand, if your loved one enters an assisted living facility only a portion of the fee that is paid on a monthly basis will be income tax deductible. This will vary in each assisted living facility depending on the level of care provided to the person living therein. I normally recommend that they family consult with the assisted living facility in order to determine what percentage of their monthly payment will be tax deductible during each calendar year.

A parent or a related party may be a terrific tax shelter for those individuals in a high income tax bracket. If in fact the family members desire to each pay a portion of their loved one's cost of care, they may find that they are not efficiently carving up the tax benefit that is available to the family. Each person who is a taxpayer has a certain threshold for medical expenses they must exceed before they can deduct the cost of medical care. It is always wise to aggregate the medical income tax deduction on one person's income tax return. It is critical to discuss this matter with a knowledgeable account who can survey each member of the family and determine who would be the best person to utilize what could be a very large tax benefit on their income tax return. If a family member pays over one half of the cost of care, then it is likely that they can use their loved one as a tax exemption on their income tax return.

In those cases where your parents may be liquidating an annuity or retirement account, it may be best for the senior citizen in need of care to retain the medical expense deduction until they have completed the liquidation process. If your parents are in a low tax bracket and would not make good use of the tax benefit available to the family, then it may be wise to transfer funds to another family member who will use those assets to pay for their parents' cost of care. In this way, you can make certain that the tax benefit inures to a family member who can best utilize the income tax benefit. The medical expense deduction can go a long way toward reducing the tax that your parents are paying on their individual income tax return. When reviewing their tax situation and looking at their gross income you may find that you have more funds available to pay for their cost of care, since with proper tax planning it may obviate (remove) any tax liability based on their prior year's tax returns.


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