Assisted Living

[Lion EA]

Have a client who moved to a retirement community into assisted living; she's certified as chronically ill and unable to perform the ADLs (is that the acronym? activities of daily living). I take all her monthly expenses as medical deductions, right?

But, she had a buy-in component with some ownership percentage. Is some or all of her cost to get into the facility also medical? What about moving expenses?

I'm aging and my clientele is aging, so I know I have to learn more about this.

[Guest Taxed]

Few years back during an audit of my client's mom's tax return, basically the IRS will not allow a deduction for any item that is not medically necessary. For example hairdressing, laundry expenses. We had to get from the nursing home a detailed statement of the monthly expense breakdown. I remember she was paying $30 a month for TV. That was not allowed. This lady had ADL (could not bathe or go to toilet without some help)

So you have to be careful when a client says they are paid 2200 per month for nursing home. I always ask for a detailed breakdown. If they insist I tell them the risk is on their shoulders.

I don't think moving expenses would qualify for medical expense deduction. You may be able to get away with some medical mileage from her home to the nursing home.

[Lion EA]

Nursing home is in a neighboring town not more than 20-30 miles away from the home she sold, and I thought moving expenses would be a long shot anyway.

I'll see if she has an annual statement or monthly detail from the home. Only a couple of months there in 2011 that I'm preparing now. But, I need to learn what to ask for for 2013 taxes too!

Thanx.

[jainen]

>>the risk is on their shoulders<<

That was in the good olde days. In my opinion, that position can no longer be supported under the enhanced Circular 230 with IRS registering all tax preparers and courts sending our colleagues to jail. (On the other hand, "reliance on a professional" no longer works very well for the taxpayer's excuse either.)

The question is a tough one. I don't think the IRS will continue to tolerate the generous rulings in current case law, so they may issue better guidance as we all get older. Meanwhile, there is no standard meaning for the many levels of care available. Generally "nursing home" means a skilled nursing facility, which is usually 100% deductible. As for "assisted living," that can range from basically a retirement community that provides meals, to a whole lot of personal care.

Maintenance and personal care for chronicall ill (ADL) patients should be deductible. Presumably that would include cooking and cleaning, even if performed by unlicensed aides in the facility. Social activities may push too far, so you may need to have the facility allocate the monthly fee as to specific medical and personal care. In any case, one element that has not changed is that no deduction is allowed unless the care is specifically prescribed by a doctor or other licensed medical practioner..

Moving expenses are never allowed except for employment. But reasonable travel expenses for hospital in-patient or other medical care are deductible.

[Lion EA]

Thanx, Jainen. Always enlightening.

[Margaret CPA in OH]

Jainen is, as usual, correct. I have 2 clients that have been in assisted living arrangements. One had a buy-in and the other was a simple monthly payment. In each case, I asked for and received from the respective facilities their allocation of the percentage or dollar amount of the monthly fee that was applicable to the assisted part.

For the buyin client, the facility provided the statement that went sort of "Actuaries, LLC has developed the amount of the respective fees that may be allocated to the cost of providing health care. This amount was developed by calculating the present value of contractual revenues and liabilities at the time of entry, and classifying expenses as medical and non-medical. Residents of XXX should apply this percentage to their monthly fees paid in 20xx.

There is then a table for Life Care Residents. This place has 90% refundable contract arrangement, too. That entrance fee deduction is a one time thing, though.

20xx deductibility of: Single Couple

Entrance Fees $20,077 $40,154

Monthly Services Fees $191 $382

For the monthly pay client, the facility has done the calculation showing the total amount paid and the percentage (in this case, 11.32%) that can be deducted For Assisted Living Residents and the amount that can be counted as deductible.

This monthly pay facility is part of a multiple facility chain and wasn't familiar with this when I requested it the first year. They had never before been asked - go figure!

[Lion EA]

Very helpful. Thank you. This facility has been around for a lot of years, so hopefully it can spit out a statement pretty quickly Monday. It wasn't part of a larger chain, but has another name appended to its name now so may be part of a chain now. I need to learn this jargon, learn what to ask for and how to ask for it. So, appreciate the help from those of you who have been there.