Assisted Living Refund Huge

---

@Cyndi12 wrote:

No taxes withheld on $26K from SS. However, we did liquidate her IRA ($73K) to help pay for assisted living.

I'm wondering if I should remove the $126,000 from assisted living and just keep the $9K paid out of pocket for doctors and prescriptions.

---

Three comments.

1. Print the tax return before you file.  The form itself is a list of simple addition and subtraction steps.  The rules for what things are added and subtracted may be complicated, but the form itself should be easy to follow.  You should be able to see why her taxable income is so low that she gets a refund of tax (including the withholding from the IRS liquidation.)

2. Why would you want her to pay more tax than required?  If she had qualifying medical expenses, why not claim them?

3. Be aware that assisted living may not be considered deductible medical expenses.  This is long so be patient and read all the way through.

Is memory care a deductible medical expense?  Normally, deductible medical expenses are doctor and nursing care, medications and so on.  Nursing care includes the kinds of care provided by a nurse but does not have to be provided by an actual nurse, and can include assistance with bathing, dressing, eating, and taking medications.  Other costs of assisted living facilities, like room and board, housecleaning, laundry and companionship are not deductible.  The facility should be able to provide a breakdown of costs.

There is a special rule for people with chronic illnesses, including cognitive impairment.  All of her memory care expenses are deductible medical expenses if you meet all these tests:

1. your mother has a chronic illness that is certified by a doctor to last at least one year or lead to death
2. your mother requires assistance with 2 or more activities of daily living, OR requires constant care due to a cognitive impairment to prevent her from becoming a danger to herself or others.  Activites of daily living are eating, bathing, toileting, dressing, transferring, and continence.
3. her care is being provided according to a written care plan developed by a qualified professional that is reviewed and updated at least once a year.  Most memory care facilities will have a nurse, doctor or social worker on staff who can develop qualifying written care plans for their residents. 

If you must pay an entrance or initiation fee to the care facility, that is also a qualified medical expense if the three tests are met.  However, if any part of the fee is refunded when she dies or is transferred out to another facility, and you took a tax deduction before, the refunded portion may be taxable income at that time, since it is a reimbursement of a previous deduction.

If you don't have a written care plan, then only actual medical costs are deductible, and the facility can give you a breakdown of what is medical and what is not.  And obviously you should get a written care plan so you can deduct the expenses in the future. 

---

@Cyndi12 wrote:

As Opus17 mentioned, her Assisted Living bill every month does break down between the rent for the room ($8,000) and the medical  ($3,000) amount paid each month.  So, I'm thinking now just add the medical portion (help bathing, dressing and dispensing drugs), and leave out the room rent that includes cleaning (which they barely do, and I end up doing!), utilities, food (that she barely eats, I buy Ensure and Depends for her, so I'll include that) and social activities (that she never does -- she never leaves her room).

---

Again, there is no reason to omit a legitimate expense just because you are afraid of the IRS.  They can't deny you a legitimate deduction if you can prove it.

However, in the case of assisted living facilities, you do need that written care plan that is updated at least yearly.