The Internal Revenue Service addresses the deductibility of long-term care expenses in Publication 502 Medical and Dental Expenses. The publication defines medical expenses, when they are deductible, whose medical expenses can be included, and how much can be deducted.
For “Nursing Home” expenses, the publication states that medical expenses include the cost of medical care in a nursing home or similar institution for yourself, your spouse, or your dependents. The cost of meals and lodging in a facility may qualify if a principal reason for being there is to receive medical care.
The necessity of long-term care determines the deductible portion of the expenditures. The resident must be deemed to be chronically ill by a licensed health care practitioner, based either on his/her ability to perform activities of daily living, or if “he or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment”. The medical deduction is available in the year paid, and can be deducted for oneself, a spouse, or for a dependent. The definition of a dependent allows the payer to deduct payments made on behalf of a qualifying relative, such as a parent, stepparent, sibling or child. Of the total amount that qualifies, medical expenses in excess of 7.5% of adjusted gross income may be deductible as an itemized deduction on Schedule A of an individual’s tax return. In addition, a portion of premiums paid for Long-Term Care Insurance contracts may also qualify as a medical expense deduction. Certain policy requirements need to be met and the deduction is prorated based on the insured’s age.
Please refer to Publication 502 for detailed information. It is available on the IRS website, WWW.IRS.GOV. Inform your tax advisor of all medical expenses, including payments to O’Neill Healthcare, to determine the best tax treatment.