Are Nursing Home Fees deductible as a medical expense?
If so when? Several stages are available: Independent living; Assisted Living and Nursing care that includes Memory Care and I think long term care for those in coma, etc.
I visited a full stage firm last week, Friendship Village, in Chesterfield, MO. They say $8k/mo is currently typical. That comes to $96k/yr.
At our 4% rate, that requires $2.4 MM in investment assets. Plus many would have additional expenses for Medicare, medical not covered by insurance, possibly a car, and some travel and entertainment expenses. Income taxes even at capital gains rates (plus 6% state income tax) is likely to be 21%. Or an extra $25K. No doubt Social Security and RMDs etc would help pay the $96K.
Medical expenses over 7% of income are deductible. That could make quite a difference.
$3MM if not deductible (based on $120K) or $89k deduction might bring income taxes down from $25K to $6.5K.
What are the right numbers?
I would assume the $8K is for an apartment. If occupied by a couple, what does the second person pay?
The second person pays depending upon their level of need. If they have a low level of need then it’s a low amount. My parents were together in one apartment the second person was something like a 1500 extra person charge. Now they are split up with Mom in Memory Care and Dad in Assisted Living and it’s just expensive. Dad has LTC insurance or we’d need to apply for Medicaid for Mom.
If you haven’t already, check Taking Care of Parents:
Qualified medical expenses are deductible. Generally, for nursing home expenses to be considered ‘qualified’, the person receiving care must be unable to perform at least 2 activities of daily living (eating, toileting, transferring, bathing, dressing, and continence) without assistance for at least 90 days; or require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. These rules would seem to rule out deductibility for “Independent Living” and possibly “Assisted Living”, depending on the level of assistance. Expenses for at least some, if not all, “Memory Care” and “Long Term Care” are more likely to be deductible. Note: I have filled out a number of tax returns for taxpayers who have a spouse in a nursing home who are able to deduct enough medical expenses to nearly or completely eliminate their entire Federal tax liability.
Not sure that I agree with that, since the 15% Federal capital gains rate doesn’t kick in until over $83k for MFJ (which you seem to be discussing), and once you add in just the standard deduction (no medical deductions), capital gains will be taxed at 0% for income up to at least $105k (more if one or both are over 65). That’s above the $96k in expenses that you are suggesting, so it doesn’t seem that even accounting for 6% in state taxes that you would reach the level of income to average 21% in capital gains taxes in order to pay for the expense that you suggested. Plus, capital gains are only taxed on the gain - not the entire income received.
That’s a question for the care facility to answer, although I would agree with @Borgney that the costs are likely dependent on the level of assistance that is needed for each resident. It’s also possible that depending on the level of assistance needed, the couple may need to be housed separately, so there wouldn’t be a ‘second person’ in the same apartment.
Paul I think you are conflating items that a for the vast majority of people separate items
You are looking at Assisted Living (and/or Nursing Home) expense as retirement type cost – a 30 year item. Did you ask the Friendship Village people when their longest resident entered? The Nursing home and insurance people love to quote the percentage of people who “will need” such care. They kind of ignore that the average resident stays in a nursing home for less than 12 months.
My wife and I handled affairs for a friend who suffered a nasty stroke at at 70. She lived another 18 years — 15 in a facility. During the period the turn over from resident death was well over 10% a year.
If you want to project needed portfolio funds, maybe you should use average residency periods.
Also how many people entering Assisted living facilities ever return to their previous home? Sure some people rent, but homes are an asset like an S&P index fund.
My parents “checked into” a Des Moines, IA, facility known as Wesley Acres, which was a truly top-drawer retirement home for folks ranging from merely retired to needing nursing care/support. It even had an Alzheimers facility and a prompt care clinic. “Checked in” because folks buy their way in analogous to an annuity–they pay an upfront cost that varied with the fanciness of the apartment they wanted/could afford, and then all the rest was covered by that buy-in fee for the rest of their lives.
Almost all the rest. When Dad needed Alzheimers care, he was checked into that facility, and when he died, Mom had to resume paying rent.
Iowa has–or had at the time; this was some years ago–something called a Miller Trust whereby a resident signs over all remaining assets, including Social Security payments, and the State picks up all the care facility costs. The downside, to the extent there is one from a particular perspective, is that this leaves the heirs with nothing. From my perspective, it wasn’t a problem: it was what Mom wanted; they were her assets, not mine; and it had been both parents’ avowed goal to die broke so their children wouldn’t squabble over the leavings. We wouldn’t have, but… and I was the sole remaining heir by then, anyway. I suspect that, like doctors and Medicare, not all facilities accept this sort of arrangement. Too, Miller Trusts are likely State specific.
You might check to see if your area has something like a Wesley Acres and if your State has something like a Miller Trust.