Monday, May 22, 2017

How to Deduct Long-Term Care Costs

Long-term care can be very expensive. Can you deduct the costs on your income tax return?
What is Long-Term Care?
“Long-term care” refers to the ongoing personal assistance you need when you have a prolonged physical illness, disability or severe cognitive impairment (such as Alzheimer’s disease). It may involve help carrying out basic self-care tasks, such as bathing, dressing or eating, which are called “Activities of Daily Living” (ADLs). And you may need assistance with “Instrumental Activities of Daily Living” (IADLs), including meal preparation, money management, house cleaning, medication management, and transportation.
The long-term supportive care may be provided in various settings including the care recipient’s home, a personal care facility, or a nursing home.  
Long-term care is expensive. The cost can quickly wipe out the financial resources of the care recipient.. Being able to deduct the cost of care to reduce income tax liability can help preserve funds and extend the taxpayer’s ability to meet future needs.  
Are Long-Term Care Expenses Tax Deductible?
Section 213 of the Internal Revenue Code allows for the deduction of unreimbursed medical expenses paid by a taxpayer for himself, spouse, and dependents to the extent that the expenses exceed 10% of the taxpayer’s adjusted gross income. Medical expenses are somewhat broadly defined to include costs like dental expenses, medical equipment and supplies, the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care.  Medical expenses are not deductible if they are reimbursed by insurance.
You can generally deduct medical expenses either when the services were provided or when you paid for them. If the care recipient has died IRC 203(c) allows medical expenses which are paid out of the taxpayer’s estate within a year of death to be treated as paid by the taxpayer at the time incurred.
Medical expenses generally include the unreimbursed cost of care in a hospital or skilled nursing facility if a principal reason for being there is to get medical care. This includes the cost of meals and lodging. 
But what about expenses incurred for long-term care provided by non-medical personnel at the recipient’s home or in a personal care home or assisted living facility? Can these expenses be deducted? The answer may be yes, depending on the situation and the taxpayer’s compliance with certain requirements of the Internal Revenue Code.
Section 322 of the 1996 Health Insurance  Portability and Accountability Act (HIPAA) allows taxpayers to include amounts paid for “qualified” long-term care services (QLTCS) as deductible medical expenses.
What Are Qualified Long-Term Care Services (QLTCS)?
QLTCS are defined in Internal Revenue Code Section 7702B(c) as follows:
(c)Qualified long-term care services For purposes of this section—
(1)In general The term “qualified long-term care services” means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which—
(A) are required by a chronically ill individual, and
(B) are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
(2)Chronically ill individual
(A)In general The term “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as—
(i) being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity,
(ii) having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
(iii) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.
Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.
(B)Activities of daily living For purposes of subparagraph (A), each of the following is an activity of daily living: (i) Eating. (ii) Toileting. (iii) Transferring. (iv) Bathing. (v) Dressing.(vi) Continence.
 (3)Maintenance or personal care services
The term “maintenance or personal care services” means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically ill individual (including the protection from threats to health and safety due to severe cognitive impairment).
(4)Licensed health care practitioner
The term “licensed health care practitioner” means any physician (as defined in section 1861(r)(1) of the Social Security Act) and any registered professional nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary.
Jeff’s Analysis
Can you deduct long-term care expenses? Frequently, the answer is yes. It’s not easy, but it may be well worth the effort.
Expenses paid to non-medical personnel for care provided at home or in a personal care home or assisted living facility can be tax deductible if they meet the QLTCS rules.  Internal Revenue Code Section 7702B(c) establishes a number of requirements that must be met in order for an expense to be a deductible QLTCS.
  1. The services must be necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later), that are 
  2.  required by a chronically ill individual, and 
  3.  provided pursuant to a plan of care prescribed by a licensed health care practitioner. [Emphasis added]

Maintenance and personal care services. Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). [Note that this covers personal assistance provided by non-medical personnel.]
Chronically ill individual. An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
1.   He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence, or
2.   He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Annual Certification. An individual is not a chronically ill individual for tax purposes unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.
Licensed Health Care Practioner.  A physician, registered professional nurse, or licensed social worker/
The caregiver providing the QLTCS need not be a licensed healthcare professional. In Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011), Lillian Baral suffered from severe dementia and her doctor recommended that she get 24-hour-a-day care. Her brother hired personal caregivers to assist her. The Tax Court agreed that the payments to the caregivers were deductible medical expenses, even though the caregivers were not medical personnel, because a doctor had found that the services provided to Ms. Baral were necessary pursuant to the plan of care he was prescribing.
Deducting the cost of QLTCS (or any medical expenses) requires good bookkeeping. IRS regulations provide for substantiation of medical deductions: “In connection with claims for deductions under section 213, the taxpayer shall furnish the name and address of each person to whom payment for medical expenses was made and the amount and date of the payment thereof in each case.” 26 CFR 1.213-1(h). [Emphasis added]
In addition, each year you should get a new written certification from a licensed health care practitioner that the care recipient is a chronically ill individual. I also suggest that you consult with your tax advisor and elder law attorney to make sure you are complying with all the deduction requirements. On the taxpayer's 1040 deduct the expenses on Schedule A.
Additional Information:
Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011)

Thursday, May 18, 2017

Are You Liable for your Mother's Unpaid Nursing Home Bills?

[Can you be held financially responsible for your parent's unpaid hospital, nursing home, and other care costs? In some states the answer is yes. Here is an article on the subject written by Elizabeth White, Certified Elder Law Attorney* with Marshall, Parker and Weber. It is based on the current law in Pennsylvania.]
As an elder law attorney, I am often asked this excellent question: “If I cannot pay for my nursing home care, is my child required to pay my unpaid bills?”
In Pennsylvania, the answer to that question is “Yes”. However, there is a “But” that I will explain after I elaborate on the “Yes”.
The “Yes” part of my answer comes from a law in Pennsylvania called a Filial Support Law. The law states that a child is responsible for the care or the cost of care for their indigent parent.
The filial support law can be used by a parent to sue a child for care and support. It can also be used by facilities, such as nursing homes, to sue children to collect unpaid bills for their parent’s care. This happens frequently.
There are a few exceptions built into the law. One is for a child who was abandoned by their parent for at least 10 years of their minority. The second is for the child who does not have sufficient financial ability to support the indigent parent. However, the threshold for being deemed to have the financial ability to support a parent has been set very low. Courts have held children financially responsible to pay for their parent’s care even though the children have their own families to support as well.
When is your parent considered to be “Indigent?” There is no definition of indigent in the law, but courts have determined that a person is indigent if they have insufficient means to provide themselves with the care and support that they need.
The law imposes the filial responsibility on children even when there is no claim of financial wrongdoing by a child. Further, when there is a situation of a transfer of a parent’s assets to a child or another party, the law can be applied to any of the children, not just the child who benefited from the transfer.
In a family with more than one child, just being the “good” child does not shield you from liability. For example, assume that there are two children in the family and one child transfers his mother’s home or funds to himself (“bad” child). This kind of transfer can create a lengthy period during which Mom will be ineligible for certain government nursing home benefits. Unpaid bills can result. Under the support law the other child (“good” child) can be held solely responsible for the payment of the care costs for the indigent mother, even if the “good” child was unaware of and/or did not benefit from the transferred funds.
Finally, an explanation of the “But” part of the answer. The “But” is that proper planning can prevent a child from becoming personally responsible for the cost of their parent’s care. If correct planning is completed, there are programs, such as Medical Assistance and Veterans benefits, for which a parent may be able to qualify. These benefit programs can help pay for nursing home and other care costs. With this kind of expert planning in place the parent’s care costs get paid and children don’t end up getting sued.
* Elizabeth White has been Certified as an Elder Law Attorney by the National Elder Law Foundation