In Pennsylvania, Assisted Living Facilities are governed by one set of rules, and Personal Care Homes are governed by another. Pennsylvania has 1,335 personal care homes, and 194 have licenses for secure dementia units. This article would apply to residents of personal care homes with secure dementia units as well as assisted living facilities.
Internal Revenue Code Section 7702B has special rules for deducting 100% of qualified long-term care costs as medical expenses. The costs of skilled care in a nursing home should normally be deductible, but deduct-ability of costs in an Assisted Living or Personal Care Home is less certain. To be deductible, long-term care costs in either of the latter must be rehabilitative services, maintenance or personal care services that are both required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
What is a chronically ill individual? Section 7702B(c)(2) of the Internal Revenue Code tells us that it includes an individual who, within the past twelve months, has been certified by a licensed health care practitioner as meeting either of the two following descriptions: 1) He or she is unable to perform at least two activities of daily living (ADL's) without substantial assistance from another individual for at least 90 days due to the loss of functional capacity OR 2) He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
To satisfy the first test, an individual would need assistance from someone else with two or more of the following activities (ADL's): eating, toileting, transferring, bathing, dressing, and continence. However, for purposes of this section of the tax code, the Congressional Conference Report states "It is intended that an individual who is physically able, but has a cognitive impairment such as Alzheimer's disease or other form of irreversible loss of mental capacity, be treated similarly to a person who is unable to perform at least two activities of daily living."
Just who can make the necessary certification required under this law? Section 7702B(c)(4) of the code states that a "licensed health care practitioner" includes any physician, registered professional nurse, or licensed social worker. Some elder law firms, including ours, have a contact with an advance practice nurse capable of making these certifications, when appropriate.
But remember, as stated in the first paragraph of this article, the services provided must be under a "plan of care." In Pennsylvania, nearly all nursing homes, assisted living facilities and personal care homes draft and maintain a plan of care. Nursing homes are required to do so by federal law, and the latter two facilities by virtue of DPW licensing regulations. As with certification of chronic illness, the plan of care must be prescribed by a licensed health care practitioner, which includes a physician, registered nurse or licensed social worker. It is important that the opinion of a licensed health care provider be prepared before admission. It is also important that a written plan of care be prepared at, or soon after admission.
If the above requirements are satisfied, then 100% of the costs (including room and board) of the housing arrangement are deductible under Section 7702B of the Internal Revenue Code, to the extent they were not reimbursed by insurance or governmental benefits. The expenses are deducted on Schedule A of form 1040.
If a patient or resident cannot satisfy Section 7702B's test, they may still deduct a percentage of costs which are attributed to nursing services, but not the percent attributed to room and board and personal services. This deduction is by virtue of IRS Code Section 213. Regulations under this section (Reg. 1.213-1(e)(1)(v) provide that if a patient's condition is such that the availability of medicare care in an institution is not a principal reason for presence there, only that portion of the cost of care in the institution as is attributable to medical care shall be considered as a cost of medical care. The typical percentage range attributed to deductible nursing services is reported as 30-40% of the costs in an assisted living facility.
To be deductible as an itemized deduction, the expenses must be over a percentage of adjusted gross income, typically 7.5% of AGI for those over age 65 and 10% for those younger. There are other limitations on itemized deductions not discussed here.
Stay well until the next post.
Questions, or ideas for future posts, are always welcome.
Bob Gasparro, Esq.
robert.gasparro@ lifespanlegal.com
