The United States Tax Court recently addressed the deductibility of so-called “qualified long-term care services” for chronically ill individuals in Estate of Baral v. Commissioner, which was filed by the Tax Court on July 5, 2011.
Most people know that certain medical expenses are deductible. Specifically, medical expenses in excess of 7.5% of a person’s adjusted gross income are deductible under Section 213(a) of the Internal Revenue Code.
But what about expenses paid to a caregiver for the personal care of an individual who is unable to care for herself due to a chronic illness such as dementia? Are they deductible? The Estate of Baral case provides a clear explanation of what must be established in order for such expenses to be deductible.
Deductible medical expenses are those paid for medical care that are not compensated for by insurance or otherwise. Of course, only those medical expenses that exceed 7.5% of the taxpayer’s adjusted gross income are deductible.
What constitutes medical care?
Medical care includes amounts paid for diagnosis, cure, mitigation, treatment, or prevention of disease and amounts paid for “qualified long-term care services.”
“Qualified long-term care services” means necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
A “chronically ill individual” means any individual who has been certified by a licensed health care practitioner as (i) being unable to perform at least 2 of 6 specified activities of daily living (eating, toileting, transferring, bathing, dressing, or continence) for a period of at least 90 days due to a loss of functional capacity (the ADL level of disability); (ii) having a level of disability similar to the ADL level of disability as determined under applicable regulations (the similar level of disability); or (iii) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment (cognitive impairment).
Note that only 1 of the 3 types of disability–ADL level of disability, similar level of disability, or cognitive impairment–is required in order the the person in question to be considered a “chronically ill individual.”
“Maintenance or personal care services” means any care that has the primary purpose of providing needed assistance with any of the disabilities that result in the individual’s qualifying as a chronically ill individual, including protection from threats to health and safety due to severe cognitive impairment.
In summary, it is important that all of the following facts exist in order for a taxpayer to be able to treat long-term care services as deductible medical expenses: (1) a chronically ill individual, which standard may be met if at least 1 of 3 standards (ADL disability, similar level of disability, cognitive impairment) is met; (2) a plan of care prescribed by a licensed health care practitioner; and (3) the provision of maintenance or personal care services required by the taxpayer pursuant to the plan of care.
Finally, just as with other deductible medical expenses, qualified long-term care services are deductible only to the extent that they, together with other medical expenses for the medical care of the taxpayer, exceed 7.5% of the taxpayer’s adjusted gross income.