by Lee Ann Hitchman, CLPF #162, MBA, CMC and David Morse, CPA, retired 

ADLs A Key Factor for Deductibility 

Some seniors as they age require the assistance of either an assisted living facility or in-home caregivers, which can be either non-medical or nursing. Fortunately, some of these costs may be deductible from income taxes as medical expenses. It’s important to always consult with a professional tax preparer and physician to determine if the costs are deductible as medical expenses, but in this article, we provide some tips about how this can be accomplished.  

The key to deductibility is to consider the senior’s ability to perform activities of daily living. There are five physical activities of daily living, and they revolve around being able to manage the five basic physical needs: https://www.ncbi.nlm.nih.gov/books/NBK470404/ 

• Personal hygiene and grooming (bathing) 

• Oral hygiene (brushing teeth) and so on 

• Dressing  

• Toileting  

• Transferring or ambulating  

• Eating 

In addition, there are other activities necessary for daily living called instrumental activities of daily living which include: https://www.ncbi.nlm.nih.gov/books/NBK553126/ 

• Cooking  

• Driving  

• Medication management  

• Housekeeping  

• Laundry.  

Typically, when considering qualifying expenses as medical and therefore, tax deductible, one must look at physical activities of daily living, and there must be a deficit of at least two of these activities. We highly recommend obtaining a physician’s note stating that the individual needs assistance, and it is especially useful if the physician specifically identifies the deficits. 

Deducting Care Costs as Medical Expenses 

The IRS generally allows taxpayers to deduct their qualified unreimbursed medical care expenses that exceed 7.5% of their Adjusted Gross Income. You must itemize your deductions on IRS Schedule A to deduct your medical expenses instead of taking the standard deduction. 

Are Caregiver Expenses Considered Medical Expenses? 

In most cases, in-home caregivers and private nurses must be considered household employees. This relationship requires IRS and CA payroll tax reporting and tax payments by the employer (you). If this applies to your in-home attendant and if you pay Medicare tax, state employment tax, social security tax, or state or federal unemployment tax, these costs may qualify as a medical expense deduction. 

If a bona fide agency is retained, which is an established business with an U.S. Employer Identification Number, these in-home caregivers are not household employees but rather employees of the agency. Assuming a legitimate agency, these costs should qualify.  

Deducting Home Care Costs 

We recommend, to begin, by reading over IRS Publication 502, which explains how to itemize deductions for all medical expenses you claim on Schedule A (IRA Form 1040 or 1040-SR). This publication talks about what you can and cannot claim as medical and dental expenses, and how to deal with any reimbursements you may receive. It also explains what to do if you receive monies from a personal injury claim or sell off any medical equipment. 

You can obtain IRS Publication 502 via https://www.irs.gov 

Additional Possible Deductible Medical Expenses  

In addition to either caregiving or facility expenses, be sure to consider any and all other medical expenses. Examples include the following: 

• Prescription medications 
  Medical, physical therapy and psychiatric services provided by state-licensed professionals 

• In-hospital care 

• Inpatient and outpatient surgeries, except for primarily cosmetic procedures 

• Medical, dental and vision insurance 

• Medicare premiums, incl. Part D (RX) 

• In-home medical care (see narrative, above)