Navigating the complexities of caregiving can be overwhelming, especially when it comes to managing expenses and understanding potential tax benefits.
Fortunately, memory care services provided for your loved one, that exceed 7.5% of your adjusted gross income, are tax-deductible, as long as the following conditions on the tax return are met:
- The expenses are medically necessary
- The deductions are itemized
- Your loved one qualifies as a dependent
The Basics of Memory Care on Tax Deductions
Memory care services, which provide specialized support for individuals with Alzheimer’s disease or other forms of dementia, offer many benefits to families and their loved ones. However, over time, these services and benefits can become costly.
Fortunately, under certain conditions, memory care services like memory care communities can be tax deductible. Generally, medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted if you itemize your deductions.
This means that if you choose to itemize your deductions on your tax return instead of taking the standard deduction, you can deduct medical expenses that exceed 7.5% of your AGI.
For instance, if your AGI is $50,000, you can deduct medical expenses that surpass $3,750 (which is 7.5% of $50,000). So, if your medical expenses, including memory care costs, total $10,000, you can deduct $6,250 from your taxable income ($10,000 total medical expenses minus $3,750).
This can significantly reduce your taxable income, potentially lowering the amount of tax you owe.
Criteria to Claim Memory Care on Your Taxes
To successfully claim memory care on your taxes certain parameters must be met, which outline that expenses are:
- Medically necessary
- Itemized deductions
- Qualified dependent
Medical Necessity
To qualify, the memory care expenses must be primarily for medical care. This includes costs related to nursing care, medical treatments, and specific types of personal care services, like daily living such as bathing, dressing, and feeding.
Documentation from your loved one’s primary healthcare provider can support the claim that the expenses paid for are vital to caring for your loved one’s health. This means only expenses directly tied to qualified medical care, rather than general caregiving, are considered for tax deductions.
Understanding which memory care expenses qualify under Section 213(d) of the Internal Revenue Code is crucial for maximizing your tax deductions. Deductible costs must be directly related to medical care as prescribed by a licensed healthcare provider.
This means that the expenses should be necessary for the diagnosis, treatment, or management of a specific medical condition such as Alzheimer’s disease or dementia.
The costs associated with specialized care communities, like memory care, are generally deductible. This includes not just the medical treatment provided, but also the care services necessary for your loved ones’ health and safety. Nursing services, whether provided in community care or home care, also qualify if they are part of prescribed medical care.
Therapies recommended by your loved one’s healthcare professional to manage or improve conditions, like physical, occupational, or speech therapies, can also be deducted.
Itemizing Deductions
Only taxpayers who itemize their deductions can claim memory care expenses. This means you must forego the standard deduction and instead detail each deductible expense on Schedule A of your tax return.
Qualified Dependents
For a relative to qualify as a dependent, they must meet these requirements:
- Have a gross income under $4,700
- Lives with you or is a type of relative who doesn’t have to live with you
- Receive more than half of their financial support from you
If you’re looking to deduct medical expenses for a dependent, like a spouse or parent, that individual must first be considered a dependent on your tax return. To claim a loved one as a dependent on your taxes, you must include proof that you provide more than half of their financial support throughout the year.
Filing Memory Care Expenses on Your Taxes
Consider breaking this process into pieces to help keep things organized and make the filing more manageable.
Gathering the appropriate documentation is key when preparing to file for memory care tax deductions.
Keep records of all payments made for memory care services, including invoices, receipts, and statements from the care community. If possible, include a letter from your loved one’s healthcare provider indicating memory care is medically necessary to help strengthen your case.
Using Schedule A (Form 1040), Itemized Deductions, itemize your expenses to claim these deductions on your tax return.
On Schedule A, you will list the total medical expenses, including memory care costs. Remember, only the portion of these expenses that exceeds 7.5% of your AGI will be deductible.
Tips for First-Time Filers
For those filing memory care expenses for the first time, the following tips can help make the filing process feel less complex and overwhelming.
- Consult a Tax Professional: Given the complexity of tax laws, consulting a tax professional can help confirm you maximize your deductions and comply with all IRS requirements.
- Keep Detailed Records: Accurate record-keeping is crucial. Maintain a folder with all relevant receipts, invoices, and documents, including any prescriptions or letters from healthcare providers.
- Avoid Small Errors: Make sure you’re only filing for qualifying medical expenses in your calculations. Double check your math as only expenses exceeding the 7.5% AGI threshold can be deducted, and confirm all the necessary paperwork is attached before filing.
Connect With Our Team
Claiming your loved one’s memory care expenses can provide financial comfort and access to valuable tax benefits. The key is making sure that your family meets the appropriate requirements.
Our team at Dogwood Forest of Grayson can guide families as they navigate this financial sector. Connect with us to learn more!