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Are nursing home expenses deductible?
Old 08-17-2012, 10:17 PM   #1
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Are nursing home expenses deductible?

I was wondering in relation to late life expenses are nursing home and or assisted living expenses deductible for tax purposes as medical expenses? If so, that could put RMD's under a whole new perspective.
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Old 08-17-2012, 10:45 PM   #2
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Check IRS Publication 502 for what qualifies as a deductible medical expense.
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Old 08-17-2012, 10:54 PM   #3
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Note that in general one has to exceed 7.5% of income so that RMDs will raise the minimum spent before the deduction kicks in.
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Old 08-18-2012, 01:00 AM   #4
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Originally Posted by meierlde View Post
Note that in general one has to exceed 7.5% of income so that RMDs will raise the minimum spent before the deduction kicks in.
and after 2012, that floor is raised to 10% Tax Topics - Topic 502 Medical and Dental Expenses
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Old 08-18-2012, 06:35 AM   #5
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If you are in a nursing home or assisted living for medical reasons most of the payment is deductible. The facility itself determines exactly how much.
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Old 08-18-2012, 09:50 AM   #6
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Because we're self-insuring for LTC, I did some research on this question and agree with MichaelB's answer above. Having NH costs be substantially deductible will be a big help if the need arises.

Your specific needs in the NH will determine the percentage of total costs that are deductible. For rough and tough planning purposes, I'm using 75% as a guesstimate.

I'm still looking into this.
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Old 08-18-2012, 10:49 AM   #7
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I can't imagine a nursing home resident who isn't there for medical reasons. The only expenses that possibly wouldn't be deductible would be laundry and salon/barber. It isn't difficult for that cost to substantially exceed 10% of income and in Oregon, because medical expenses for seniors are deductible in their entirety, there is no floor.
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Old 08-18-2012, 12:55 PM   #8
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I can't imagine a nursing home resident who isn't there for medical reasons. The only expenses that possibly wouldn't be deductible would be laundry and salon/barber. It isn't difficult for that cost to substantially exceed 10% of income and in Oregon, because medical expenses for seniors are deductible in their entirety, there is no floor.
Assisted living was also included in the OP and in a community or facility with multiple options (independent, assisted, etc) it may be that nothing is deductible. The key driver is the need to be there, any IRS challenge is after the fact.

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Originally Posted by youbet View Post

Your specific needs in the NH will determine the percentage of total costs that are deductible. For rough and tough planning purposes, I'm using 75% as a guesstimate.

I'm still looking into this.
My guess is 75% is low, but it would be a safe planning number. When my aunt went from independent living to assisted living her deductions went from below the 7% floor to greater than her IRA withdrawals and offset her entire taxable income.
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Old 08-18-2012, 04:25 PM   #9
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Thank you all for very valuable information. I had read IRS pub 502 but it's hard to know before hand just how things are sliced by the IRS. That 75% rule is valuable as is knowing that Oregon is more lenient. I'm trying to decide whether to keep our LTC policy with CALPers since the premiums keep going up substantially and I recently learned that they no longer accept new members so the premiums are now surely going to go thru the roof. A guideline of 75% as allowable with nursing home/ assisted living costs being what they are in all probability means that in case we need such care in all likelihood our RMD's would not be taxable. This would make a big difference.
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Old 08-19-2012, 08:24 AM   #10
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My guess is 75% is low
That could certainly be the case, but better to err on the low side. Additionally, I'm including in the cost of LTC the entire incremental cost DW would incur if I was incarcerated a NH resident. In addition to direct payments to the facility for medically required care, DW would likely incur additional expenses related to my absence from the household which would not be deductible.
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When my aunt went from independent living to assisted living her deductions went from below the 7% floor to greater than her IRA withdrawals and offset her entire taxable income.
Of course, depending on the absolute numbers, even a deductible percentage lower than 75% could have resulted in the deduction being greater than your aunt's entire taxable income.

But, the bottom line is that deductibility will likely play a significant role in DW and I being able to self-insure, especially if LTC needs occur after RMD's begin.
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Old 08-19-2012, 12:44 PM   #11
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Quote:
Originally Posted by ejman View Post
A guideline of 75% as allowable with nursing home/ assisted living costs being what they are in all probability means that in case we need such care in all likelihood our RMD's would not be taxable. This would make a big difference.
If it helps, the proceeds of a long-term care insurance policy are generally not taxable unless the check exceeds the expenses.

Of course then you wouldn't have any expenses, so you wouldn't have any deduction.
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