Federal Income Tax Filing Requirements for Nursing Home Patients

Traditional Medicare doesn't cover the cost of long-term care. While a Medicare-managed care plan might provide a modest level of support, such as a weekly visit to an adult day program, the majority of costs of long-term support and services are paid by a senior's family.

The good news is that, according to ATI, a consulting firm that analyzes nursing home data, long-term residents of nursing homes number only about 700,000 in 2020. Another 600,000 receive short-term care in skilled nursing facilities, and about 500,000 live in assisted living or long-term care facilities.

On another positive note, you might be able to deduct a portion of the cost of nursing home care when filing your income tax return, assuming that the expense adheres to the Internal Revenue Service (IRS) rules and regulations.

Long-Term Care Costs

If your long-term care costs meet certain requirements, you can deduct them as a medical expense. These costs include in-home, assisted living and nursing home expenses.

To be a deductible expense, the care must be necessary in a medical sense. According to the 2019 version of the IRS Publication 502, the services provided may be preventive, therapeutic, treatment or rehabilitative in nature.

What's more, the cost of meals and lodging at nursing homes and assisted-living facilities are deductible if the origin of the expense is the patient's effort to obtain qualified medical care.

Prescribed Care Plan

For a nursing home or long-term care expense to be deductible, the care must be provided by a licensed health care practitioner for the treatment of a chronically ill patient. An individual is deemed to be chronically ill if his or her status is such that the person is unable to perform two or more normal activities of daily living, such as eating, bathing or dressing, for a period of ​90 days​ or more.

Dementia or another form of cognitive impairment meet this requirement as well, if the condition is such that supervision is required to maintain the person's health and safety.

Long-Term Insurance Premiums

Like the deduction for nursing home care, the tax code allows an itemized deduction for long-term insurance premiums. Premiums that exceed a 7.5 percent ​threshold are deductible.

For insurance premiums to be deductible, a policy must be dedicated to long-term medical care. So, while the traditional long-term care insurance policy premiums can be deductible, any policy that offers both life insurance and long-term care benefits are not. But Medicare co-pays are also deductible.

What's more, the deduction is capped on an age basis, so those who benefit most are ​age 70 and older​. This effect is due in part to the fact that a person is likely to have greater medical expenses as they age.

Using Itemized Deductions

While you itemize the deductions related to nursing home care on your tax return, the IRS will allow them only if the dollar value of the deductions is ​greater than 7.5 percent​ of your adjusted gross income. And then, the amount you can deduct is the difference between the standard deduction and the total of your itemized medical expenses, of which nursing home care is a portion. In the event an adult child pays for the nursing home care of a dependent, the person can itemize the deductions in a tax return.

While traditional Medicare doesn't cover the cost of long-term care, you might be able to deduct a portion of the cost of nursing home care when filing your income tax return. Expenses associated with nursing home care that's provided by a licensed health care practitioner for a chronically ill patient may be deductible if they exceed 7.5 percent of a taxpayer's adjusted gross income.