Long Term Care Insurance Benefits and Deducting Costs

[pbouman]

My dad lives in the dementia wing of an assisted living facility.  He needs constant assistant with the various activities of daily living.  The assisted living center invoices me monthly for the costs of his care and room and board, which I pay from his bank account on his behalf. 

He is receiving benefits from a long term care insurance policy he purchased.  These benefits currently cover 100% of the monthly invoice from the facility. 

In preparing his taxes this year, I entered the amount he paid to the assisted living center.  I also entered the amount of benefits he received from the insurance policy (these two amounts are the same). 

Surprisingly, the software advised me that his assisted living facility costs were deductible and the benefits received were not counted as taxable income.  This seems like "double dipping", getting a deduction for something he is getting reimbursed for.  Did I enter this incorrectly?  His tax implications are enormous.

[RichardG · Accepted solution]

I assume you went through the interview for long term care distributions under the Less Common Income heading.  Essentially, the costs of your father's care and the reimbursements from the insurance contract cancel each other out.  The benefits are not taxable since they did not exceed the cost of care.  However, these costs are not deductible since there was reimbursement.  Please do not re-enter the long term care costs again under the Medical heading.

[jimmkim]

My sister is in a memory care home since September last Year. I have been paying her expense from her account.  I am her guardian and preparing her tax return. Is her facility expense deductible?

[VictoriaD75]

Yes. Per the IRS, qualified medical expenses include:

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are:

1. Required by a chronically ill individual, and

2. Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

If you sister is paying to be in the facility for care, it is deductible so long as the expenses are not covered by a long-term care insurance plan and reimbursed.