Transitioning to independent living can feel like a big leap. It often means downsizing, adapting to a new community, and making new friends. It also means a new financial picture. One important question for that picture is whether senior independent living is tax deductible. The short answer is that medical expenses are typically deductible and some expenses at continuing care retirement communities can be deductible, as well.

Key Takeaways

Medically necessary care is almost always tax deductible. Other aspects of independent living are unlikely to be tax deductible, except in a few cases.
There may be additional tax credits available. These can depend on age, disability, and what state your loved one lives in.
Talking to a financial advisor or senior care specialist is beneficial. They can provide guidance on care decisions and financial planning.
Talking to a financial advisor or senior care specialist is beneficial. They can provide guidance on care decisions and financial planning.

What senior independent living expenses are tax deductible?

Deductions of qualifying expenses are one way to lower overall taxable income, which helps result in a lower tax bill. The majority of deductions for independent living fall into two categories: the type of senior living community and the type of care is being provided.

Medical care expenses are deductible after a certain amount

Qualifying medical expenses include medication, consultations with a doctor, mental health care, dental work, and other types of medically necessary care such as physical therapy. That being said, only medical costs that exceed 7.5% of one’s adjusted gross income (AGI) may be deducted.^[01]

This means that if your AGI was $50,000, then you would need to have spent more than $3,750 on medical care. Note that only the amount over the 7.5% can be deducted. So, if your AGI was $50,000, and you spent $5,000 on medical care, only $1,250 could be deducted.

Additionally, if you pay an insurance premium for a policy that covers medical care or for a policy that covers qualifying long-term care services, then a limited amount of these premium payments may also be deducted as a medical expense.^[02]

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When to deduct medical expenses versus taking the standard deduction

In cases where expenses are less than the standard deduction, it doesn’t make financial sense to do itemized deductions. For those age 65 and older, the standard deduction is $14,700. For seniors who are also blind, the standard deduction rises to $16,450.^[03]

Type of independent living community

If you or a senior loved one you are helping is living in an independent living community that is part of a continuing care retirement community (CCRC), then some portion of their monthly fees and their initial entrance fee may be tax deductible. Consult with a financial advisor or tax specialist for exactly what portion of payments will be deductible. This is because CCRCs offer integrated medical services as part of their community, and everyone’s fees help pay for these services. So even if a resident doesn’t need to use those medical services yet, or only does so at a minimal level, they are still technically paying for potential medical care.^[01]

Independent living tax credits

Separate from tax deductions are tax credits. Tax credits are separate from deductions, as they directly reduce the amount of money that one owes rather than solely lowering the amount of income that one can be taxed on. This means that if you owe a tax amount of $5,000, but have a tax credit of $1,500, then you would only end up owing $3,500.^[04]

One such credit is the Tax Credit for the Elderly or Disabled. This tax credit is for anyone age 65 and older, or anyone who is retired with taxable disability income, who also meets an income threshold requirement. For an individual, either their income cannot exceed $17,500, or the total of their nontaxable income is equal to or less than $5,000. For those who are eligible, the credit amount offered ranges from $3,750 to $5,000.^[05] Some other restrictions apply, and it can be confusing to know if you can qualify, but the IRS has an online tool to help determine your eligibility.

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Some states may offer additional tax credits as well, so talking to an accountant or financial advisor can be beneficial to ensure all credits are being utilized. For example, in Massachusetts there is the Senior Circuit Breaker Tax Credit. This credit is available to seniors who own or rent property, which could include rent paid toward living in an independent living community.^[06]

Other ways to save on the cost of independent living

The costs of independent living vary greatly. For example, a retirement community that has additional campus amenities will typically cost more than a more basic senior apartment. Typical offerings include on-site dining and meal services, transportation, housekeeping, and community-based social activities.

An important note is that independent living communities often will not offer on-site medical care or assistance with activities of daily living (ADLs). When more care is needed, assisted living may be a better option.

One of the biggest factors in the cost of independent living is location. The costs can vary significantly by state, and some states may offer additional tax credits. While moving states may not be an option or desired, it can be helpful to look away from city centers at suburban neighborhoods.

Another way to save money, if you or your loved one enjoy cooking and have the ability to do so, is to choose an independent living facility that doesn’t require residents to purchase a full meal plan. Relying on home-cooked meals can help reduce costs.

When choosing a community, look for any additional fees, such as for activities or transportation services. While this may be included in the overall cost of some communities, at others it can be included as an extra service fee.

Having a Senior Care Advisor to guide you and your loved one through the process of finding an independent living community may be helpful. They can discuss care options, help you understand the costs, and provide personalized guidance for your next steps.

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References

Ciccarelli, P. F. (2022, June 6). Tax breaks for continuing care retirement communities. Ciccarelli Advisory Services, INC.
Internal Revenue Service. (2023, April 4).Topic no. 502, medical and dental expenses.
Internal Revenue Service. (2023, April 6). Topic no. 551, standard deduction.
Internal Revenue Service. (2023, January 11). Credits and deductions for individuals.
Internal Revenue Service. (2023, March 3). Publication 524 (2022), credit for the elderly or disabled.
Massachusetts Department of Revenue. (2023, February 17). Massachusetts Senior Circuit Breaker tax credit.

Meet the Author

Chloe Clark

Chloe Clark is a copywriter for OurParents. She has an MFA in Creative Writing, with a background in education and publishing. She has over a decade’s experience in writing for print publications and websites.

Edited byKristin Carroll

Reviewed byLucinda Ortigao

The information contained in this article is for informational purposes only and is not intended to constitute medical, legal or financial advice or create a professional relationship between A Place for Mom (of which OurParents is a trademark) and the reader. Always seek the advice of your health care provider, attorney or financial advisor with respect to any particular matter and do not act or refrain from acting on the basis of anything you have read on this site. Links to third-party websites are only for the convenience of the reader; A Place for Mom does not recommend or endorse the contents of the third-party sites.

Is Independent Living Tax Deductible?