Wife is chronically ill, been in assisted living since 12/19. Does the plan of care have to have to have been created last year, or is a recent one acceptable?

[dlt4]

Not sure what documentation there was previously, but I asked her nurse to create one due to deducting monthly fees this year.

[JohnB5677]

Yes, in certain instances nursing home expenses are deductible medical expenses.

• If you, your spouse, or your dependent is in a nursing home primarily for medical care, then the entire nursing home cost (including meals and lodging) is deductible as a medical expense.
• If that individual is in a home primarily for non-medical reasons, then only the cost of the actual medical care is deductible as a medical expense, not the cost of the meals and lodging.

Please also see Medical, Nursing Home, Special Care Expenses (irs.gov)

The deduction value for medical expenses varies because the amount changes based on your income. In 2020, the IRS allows all taxpayers to deduct their total qualified unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income if the taxpayer uses IRS Schedule A to itemize their deductions.

Your adjusted gross income (AGI) is your taxable income minus any adjustments to income, such as contributions to a traditional IRA and deductible student loan interest.

[Opus 17]

As you seem to be aware, charges for an assisted living facility are generally not tax-deductible as medical expenses.  You can only deduct those expenses that are for nursing care. The care does not have to be provided by a nurse but it must be the kind in type of services usually provided by nurses.

if the person is chronically ill, you can deduct the entire cost of assisted-living as a medical expense if you meet three tests.

1. The person is chronically ill, meaning they have been certified by a doctor to have a chronic illness that will last at least one year or will lead to death, or the person has a cognitive impairment which means that they will be a danger to themselves or others unless under constant care.

2. The person requires assistance with two or more activities of daily living. Activities of daily living are eating, toileting, continence, transferring, dressing, and bathing.

3. The care is provided according to a written care plan developed by a medical professional or qualified social worker that is reviewed and updated at least once a year.

To your specific question, generally speaking, things are only deductible when they actually happen. If you don’t have a written care plan until March 1, then expenses before March 1 would not fall under that rule.  However, I’m sure it is true from a medical point of view that your spouse‘s chronic illness was the same before the plan was written, and the humane answer would be that the care is a qualified expense.  I have not seen any tax court cases that cover this specific issue. Most taxpayers are not audited. If you have the bad luck to be audited, it would be up to the individual auditor whether to accept a letter as covering care provided before the letter was written. It might depend on the length of time.  I would imagine that you would have an easier time deducting all of your expenses for 2021 if the letter was written in March, 2021, than you would have deducting retroactive expenses from 2020 or 2019 for a care plan only written in 2021.

In the end, I think you will have to take your own informed risk on this.

[dlt4]

Thanks for your reply.

My wife was officially diagnosed with Alzheimer’s by her neurologist in September of 2018. I’m thinking that even if there wasn’t a plan of care last year that perhaps that diagnosis, along with the care plan just created, would be enough verification if I got audited. Being able to deduct the monthly fee saved a huge amount on my return. It seems the worst that could happen would be paying the extra amount due if the deduction isn’t allowed. 

[Opus 17]

@dlt4 

The “worst“ that could happen is that you would be required to pay the tax you owed for the disallowed deduction including a penalty and interest that adds up to about 1% per month backdated to the tax deadline for the year in question, which is usually April 15, plus an additional 25% penalty of the amount owed if the IRS determines that the this was a deliberate misstatement of your tax return rather than a misunderstanding.

As I mentioned before, if you are only obtaining the written care plan now, and you want to deduct your entire 2020 cost, you will have to judge whether you are comfortable with the risk.  

[dlt4]

Thanks again for your helpful reply. 
If you prefer not to answer this I totally understand, but I’ll throw the question out there. Based on what I’ve told you,  if you had to make the decision, do you  think taking the deduction is worth the risk?

[Opus 17]

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@dlt4 wrote:

Thanks again for your helpful reply. 
If you prefer not to answer this I totally understand, but I’ll throw the question out there. Based on what I’ve told you,  if you had to make the decision, do you  think taking the deduction is worth the risk?

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Most people are not audited. Beyond that, you are right that I don't really want to make any more specific opinion. 

[dlt4]

You have been very helpful. Thank you