As we age, many of us may require assistance with daily activities and turn to home care or assisted living communities for that assistance. This transition can come with various emotional and logistical challenges, but it can also have financial implications that should not be overlooked. One financial component that can be overlooked is the tax implications of receiving care at home or in assisted living communities. Here are some essential tax tips to help seniors and their families navigate this complex terrain.
1. Deductible Medical Expenses
One of the primary tax benefits for seniors receiving care is the ability to deduct eligible medical expenses. This includes costs associated with in-home care or assisted living communities. To qualify, your medical expenses must exceed 7.5% of your adjusted gross income (AGI) for the year. Eligible expenses may include doctor’s fees, prescription medications, medical supplies not covered by insurance as well as some of the costs for home modifications to accommodate your health needs. They can also include the cost of care in the home or for room, board, and care at an assisted living or memory community.
If your medical expenses exceed the threshold mentioned above, the amount by which it does can be claimed as the medical expense tax credit. This credit can reduce your tax liability by a significant amount. Keep detailed records of all eligible expenses, including receipts and invoices for services provided by caregivers or assisted living facilities, and consult with a tax professional to determine the exact amount you can claim.
2. Consider the Capital Gains Tax Implications of Home Sales
For some seniors in need of care, selling their primary residence may become necessary to finance that care. Fortunately, there is a tax benefit available in such cases. Under the current tax laws, individuals can exclude up to $250,000 (or $500,000 for married couples filing jointly) in capital gains from the sale of their primary residence if they have lived in the house for at least two of the past five years. With the guidance of a tax professional, this can provide significant tax savings when selling a home to cover the costs of in-home care or assisted living.
3. Investigate How Long-Term Care Insurance Can Impact Your Taxes
Long-term care insurance can be a valuable tool for seniors planning their future care needs. Premiums for qualified long-term care insurance policies may be tax-deductible, depending on your age. This tax deduction can help offset the costs associated with obtaining and maintaining a long-term care insurance policy.
4. Take Advantage of the Dependent Care Credit
If you provide financial support to a family member, such as a parent, who requires care, you may be eligible for the dependent care credit. This credit can provide a significant tax break to help offset the costs of caregiving. To qualify, you must meet certain income and dependency requirements, so consult with a tax professional to determine if this is applicable to your situation.
6. Understand Medicaid and Medicare
Medicaid and Medicare are vital resources for seniors receiving care, but they have different implications for your taxes. Medicaid is a means-tested program that provides healthcare coverage to low-income individuals. Eligibility for Medicaid can impact your taxable income, so it’s essential to consult with a tax professional to understand how it might affect your overall financial situation.
Medicare, on the other hand, is not income-dependent, and most beneficiaries do not pay premiums for Part A coverage. However, if you have additional Medicare coverage, such as Part B or Part D, you may need to pay premiums.
7. Keep Detailed Records
Whether you receive care at home or in an assisted living community, maintaining accurate and organized records is crucial for maximizing your tax benefits. Keep records of all medical expenses, caregiver invoices, insurance statements, and any other financial documentation related to your care. This will make it easier for your tax professional to calculate deductions and credits accurately when filing your tax return.
8. Consult a Tax Professional
The tax landscape is complex and constantly evolving. Seniors and their families should seek guidance from a qualified tax professional who specializes in eldercare tax issues. They can help you navigate the intricacies of tax planning, ensuring you take full advantage of available deductions and credits while remaining compliant with tax laws.
If you are trying to find the right care options for a senior loved one or have any questions about senior care, reach out to Oasis Senior Advisors (914.356.1901 – 475.619.4123 – TheDoyles@YourOasisAdvisor.com), we offer our knowledge and expertise at no cost to you.