Approximately 1.3 million Americans live in nursing homes, according to the National Center for Health Statistics. If you have a parent entering one, it is important to understand how certain expenses and decisions may affect your taxes. Here are five possible tax breaks to explore.
Long Term Medical Care
Qualified long term care expenses, including nursing home costs, may be deductible as medical expenses if they, along with other medical costs, exceed 7.5 percent of your adjusted gross income (AGI).
Qualified services include diagnostic, preventive, therapeutic, and rehabilitative care, as well as maintenance or personal care services provided to a chronically ill individual by a licensed healthcare practitioner.
To meet the “chronically ill” standard, a physician must certify that the individual cannot perform at least two activities of daily living such as eating, bathing, dressing, toileting, transferring, or maintaining continence for at least 90 days, or suffers from severe cognitive impairment.
Nursing Home Payments
Amounts paid to a nursing home are deductible as medical expenses if the stay is primarily for medical care rather than custodial care.
If the stay is mainly for custodial care, only the portion of costs related to medical treatment qualifies as a deductible expense. However, if your parent is chronically ill, all qualified long term care services including maintenance or personal care are deductible.
If your parent qualifies as your dependent, you can also include their medical expenses with your own when determining your total medical deduction.
Long Term Care Insurance Premiums
Premiums paid for a qualified long term care insurance policy are deductible as medical expenses, subject to AGI limitations.
A qualified policy must:
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Cover only long term care services
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Exclude Medicare covered expenses
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Be guaranteed renewable
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Have no cash surrender value
For 2025, the deductible premium limits are:
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Ages 61 to 70: $4,810
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Over 70: $6,020
The Sale of Your Parent’s Home
If your parent sells their home before or after moving into a nursing facility, up to $250,000 of gain from the sale may be excluded from taxable income ($500,000 if married).
To qualify, the seller must generally have owned and used the home for at least two of the past five years. However, if your parent becomes physically or mentally unable to care for themselves during that period, the IRS allows an exception to the two year use requirement.
Head of Household Filing Status
If you are unmarried and your parent meets certain dependency tests, you may qualify for head of household filing status.
This status offers a higher standard deduction and, in some cases, lower tax rates than single filing status. You might qualify even if your parent does not live with you, provided you supply more than half of their financial support.
These are only a few of the potential tax breaks available when assisting a parent with long term care. The tax rules are complex, and each situation is unique. If your family is preparing for this transition, consider consulting a tax professional to identify every available deduction and ensure proper reporting.