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Taxes for MIL in memory care?
Old 02-20-2024, 04:57 AM   #1
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Taxes for MIL in memory care?

Our first year with MIL in memory care. Curious if we are maximizing the tax efficiency and whether we need to file taxes on her account.

Here's a general picture

She's single & gets
~$2k / mo TX pension
~$600 / mo SS
pays ~$3,400/mo memory care + incidentals
She's 83 & living in TX

Not sure if she's been filing in the past 5 years, but thinking not likely. I'll look into this with SIL who has been caring for her before memory care.

Curious if there is anything we can consider to help her with the meager savings she has (about $20k left).

Thanks for any input.
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Old 02-20-2024, 05:11 AM   #2
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Surewhitey,
If M-I-L has no witholding from pension or SS, then there is no overpayment for which she'd get a refund.

If there are refundable credits, then that's what we're looking for...
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Old 02-20-2024, 06:01 AM   #3
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I’m right there in the same situation. I “took over” Moms taxes and financials last year. She’s 84 and has early symptoms of Dimensia. Still lives independantly with lots of helps. Probably shouldn’t live alone but she is very stubborn.

Getting a handle on her financials (investments, bills and taxes) was tough. And her prior accountant was border-line incompetent! Getting it all straightened out now.

You can create an account with IRS and see what her prior record says. I had my accountant do that for Mom. I believe you can do that on your own with Moms SSN and date of birth.
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Old 02-20-2024, 06:56 AM   #4
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Originally Posted by Surewhitey View Post
Our first year with MIL in memory care. Curious if we are maximizing the tax efficiency and whether we need to file taxes on her account.

Here's a general picture

She's single & gets
~$2k / mo TX pension
~$600 / mo SS
pays ~$3,400/mo memory care + incidentals
She's 83 & living in TX

Not sure if she's been filing in the past 5 years, but thinking not likely. I'll look into this with SIL who has been caring for her before memory care.

Curious if there is anything we can consider to help her with the meager savings she has (about $20k left).

Thanks for any input.
Yes, she is required to file a tax return because her gross income is over $15,700. Gross income includes the taxable part of her pension but not her SS.

Her deductions for medical expenses exceed her AGI, so her taxable income is $0 and she won't owe anything. If she has any withholding from the pension, submit a new W-4P to have that stopped. To stop withholding on the SS submit a new W-4V.

Unfortunately, I don't know of anything tax related that could help. Even when her savings run out, neither you nor SIL will be able to claim her as a dependent because the pension + SS covers more than half her support costs.
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Old 02-22-2024, 04:05 AM   #5
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Thanks for the info. Gotta go down the rabbit hole now. Looks like she hasn't filled for some time now...
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Old 02-22-2024, 06:17 AM   #6
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I prepared taxes for several years for a relative that spent time both in assisted living and memory care. Another point to note is that not all costs incurred in a facility are deductible. We got a letter each year from the care homes that told us what percentage of costs were considered deductible. In the early years it was under 40% of the monthly bill and increased as the care level needs increased. You may want to make sure you have that information before filling out her taxes.
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Old 02-22-2024, 07:03 AM   #7
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Quote:
Originally Posted by Surewhitey View Post
Our first year with MIL in memory care. Curious if we are maximizing the tax efficiency and whether we need to file taxes on her account.

Here's a general picture

She's single & gets
~$2k / mo TX pension
~$600 / mo SS
pays ~$3,400/mo memory care + incidentals
She's 83 & living in TX

Not sure if she's been filing in the past 5 years, but thinking not likely. I'll look into this with SIL who has been caring for her before memory care.

Curious if there is anything we can consider to help her with the meager savings she has (about $20k left).

Thanks for any input.
Quote:
Originally Posted by cathy63 View Post
Yes, she is required to file a tax return because her gross income is over $15,700. Gross income includes the taxable part of her pension but not her SS. ...
Quote:
Originally Posted by Surewhitey View Post
Thanks for the info. Gotta go down the rabbit hole now. Looks like she hasn't filled for some time now...
Based on her $24k pension and $7.2k of SS in 2023 she would have owed $830 in federal income taxes, and that is just for one year and doesn't include failure to file and underpayment penalties for any prior years so it might be quite a rabbit hole and eat up a good portion of that $20k.

You might be better to just "play ostrich".
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Old 02-22-2024, 09:34 AM   #8
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I'm with pb4....just don't go there. If and when she gets an IRS notice, address it then, or don't address it then...sounds like she needs her savings to pay her bills.
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Old 02-22-2024, 09:43 AM   #9
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Also, recognize that she won’t be paying taxes any longer (if she even was) no that she’s in memory care. You have to make sure, but with my MIL, her memory care costs were fully deductible, unlike assisted living, because she was in a locked down facility to keep patients from walking off.
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Old 02-22-2024, 09:45 AM   #10
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Originally Posted by goingtotravel View Post
I prepared taxes for several years for a relative that spent time both in assisted living and memory care. Another point to note is that not all costs incurred in a facility are deductible. We got a letter each year from the care homes that told us what percentage of costs were considered deductible. In the early years it was under 40% of the monthly bill and increased as the care level needs increased. You may want to make sure you have that information before filling out her taxes.
From IRS Pub 502:

"You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.

Don't include the cost of meals and lodging if the reason for being in the home is personal. You can, however, include in medical expenses the part of the cost that is for medical or nursing care."

https://www.irs.gov/publications/p50...link1000178988

To me, if you are in independent living, then it would just be the percentage that the facility mentions. If you're in assisted living or memory care, then to me the first paragraph quoted above would apply.
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Old 02-22-2024, 11:05 AM   #11
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Originally Posted by SecondCor521 View Post
From IRS Pub 502:

"You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.

Don't include the cost of meals and lodging if the reason for being in the home is personal. You can, however, include in medical expenses the part of the cost that is for medical or nursing care."

https://www.irs.gov/publications/p50...link1000178988

To me, if you are in independent living, then it would just be the percentage that the facility mentions. If you're in assisted living or memory care, then to me the first paragraph quoted above would apply.
I've been wrestling with this on my mom's taxes for her first year in assisted living. I've read the few paragraphs on long-term care in p502 and it is not clear to me because it says if in assisted living "to get medical care." The problem is that p502 doesn't provide definitions.

She has an assessment and personal care plan from a medical professional (RN), is under care for COPD and diabetes, and meets the assistance with two activities of daily living criterion (bathing and transferring). So I'm going with all costs are deductible above the 7.5% hurdle.
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Old 02-22-2024, 11:22 AM   #12
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Originally Posted by USGrant1962 View Post
I've been wrestling with this on my mom's taxes for her first year in assisted living. I've read the few paragraphs on long-term care in p502 and it is not clear to me because it says if in assisted living "to get medical care." The problem is that p502 doesn't provide definitions.

She has an assessment and personal care plan from a medical professional (RN), is under care for COPD and diabetes, and meets the assistance with two activities of daily living criterion (bathing and transferring). So I'm going with all costs are deductible above the 7.5% hurdle.
I'm doing similarly with my Dad.

For me, the relevant question is "Why is my Dad living where he is?" Before, when he was in independent living, it was because it was a nice community with fun planned activities and a nice dining room and they were at the age where they didn't want to deal with home maintenance.

Now, he's in assisted living because he needs the medical care they provide - the on call med techs he can summon with his pendant, help with ADLs, medication management, help getting up from falls, etc. That very much sounds to me like he's there because he needs to be there for the medical care aspect. Yes, it's still a nice place (he's in a CCRC-type place), but "a principal reason" is for medical care. I think it's important that it doesn't say "the principal reason"; as long as it is "a principal reason" that meets the IRS language. I also haven't seen any bright line definitions of "X out of 5 ADLs" or anything, but it's possible those are in another IRS document somewhere that I just haven't seen yet.

I haven't bothered, but I suspect if you drilled down, you could find the underlying federal law somewhere in 26 USC, and the language would be even more general in nature and would also delegate the development of regulations about it to the Secretary of the Treasury, because the IRS is part of the Treasury Department.

In fact, somewhere at the beginning of the Schedule A instructions, it does lay out a general rule about medical expenses; all the specific examples about acupuncture or nursing homes or durable medical equipment or cosmetic surgery is IMHO the IRS giving specific examples on common questions that people have had in the past.

You could also ask the IRS and they would maybe give you non-binding guidance. I wish you the best of luck in reaching them on the phone or in person.

Or you can do like I do which is do my level best to reasonably comply with a common sense understanding of tax law in a way that lets you sleep at night, and then talk it over with the IRS agent if ever audited.
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Old 02-22-2024, 04:52 PM   #13
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I read that as only nursing home expenses would be fully deductible and only a portion of assisted living would be deductible and no independent living would be deductible.

DM was in assisted living but the only medical part was that they checked in on her twice a day to make sure that she took her meds but otherwise it was just a room with a kitchenette and a meal plan for the dining room.

Since I never received anything saying that x% was medical so I never deducted anything but her 7.5% exclusion would have been substantial so I don't think the tax benefit would have been significant.
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Old 02-22-2024, 05:39 PM   #14
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I just want to clarify what I wrote earlier. Basically I followed the interpretation of the law outlined here:

https://www.elderlawanswers.com/tax-...ing-costs-7184

The article states that assisted living is fully deductible if they can't perform at least 2 of their ADL's or they have been diagnosed with dementia. Basically anyone who doesn't have dementia and/or can perform most of their ADL's is considered in custodial care not medically necessary care. When my MIL moved into assisted living (not memory care) she was not yet diagnosed with dementia. By the time she was in memory care her LTCI kicked in and there were no additional expenses above the 7.5% to deduct. In the case of memory care I'm pretty sure a dementia diagnosis is required for admittance and therefore the expenses would be deductible for any resident.
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Old 02-23-2024, 03:40 AM   #15
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I just want to clarify what I wrote earlier. Basically I followed the interpretation of the law outlined here:

https://www.elderlawanswers.com/tax-...ing-costs-7184

The article states that assisted living is fully deductible if they can't perform at least 2 of their ADL's or they have been diagnosed with dementia. Basically anyone who doesn't have dementia and/or can perform most of their ADL's is considered in custodial care not medically necessary care. When my MIL moved into assisted living (not memory care) she was not yet diagnosed with dementia. By the time she was in memory care her LTCI kicked in and there were no additional expenses above the 7.5% to deduct. In the case of memory care I'm pretty sure a dementia diagnosis is required for admittance and therefore the expenses would be deductible for any resident.
If LTCI kicked in, I'd think that one professional or another signed off on an ADL list that satisfied the insurance company. This would satisfy the IRS too.

We kept mounds of paperwork just in case. Most of it is in the garden now.
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Old 02-23-2024, 06:12 AM   #16
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If LTCI kicked in, I'd think that one professional or another signed off on an ADL list that satisfied the insurance company. This would satisfy the IRS too.

We kept mounds of paperwork just in case. Most of it is in the garden now.
Yes that is exactly what happened, the LTCI required that she not be able to perform 2 ADL's before they would pay.
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Old 02-23-2024, 06:23 AM   #17
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If someone is in an assisted living facility, a doctor’s prescription is all that is needed to deduct the entire cost as medical expense.
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Old 02-23-2024, 07:38 AM   #18
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For OP's case, taxable income is going to be around $26K ($24K pension plus some SS). 7.5% of that is $1950, so if her only deductions were medical expenses, she needs $27,950 in order to get down to $0 tax. Medicare premiums are $1979 and the rest would come from the memory care costs. That would mean deducting $25,971 of the memory care or $71/day. If she needs help with basic living, that's a very low number and the IRS isn't going to be concerned about it.

She should also have a small sales tax deduction on Sched A, so that would also decrease the amount of medical expenses she needs to deduct.
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