At $30,000 per year or more, assisted living expenses often represent a substantial portion of family income. Whether the care is paid for by the person living in the assisted living facility, their spouse, or their kids, I am often asked whether those expenses are deductible.

The Tax Court (for my code-head colleagues, Baker v. Comm., 122 TC No. and the IRS (Rev. Ruling 75-302, 1975-2 C.B. 86) have provided guidance.

The portion of the expenses that is attributable to medical care is deductible as a medical expense in the year in which is it paid. This means that lump-sum life-care agreements can be deducted all at once. It also means that ongoing care expenses can result in substantial deductions.

Naturally, I wonder if there are some planning opportunities for my clients here.

What if the senior has gifted assets to children as part of a long-term care nursing home strategy? Those assets now belong to the kids. The kids may be able to deduct those medical expenses from their own income.

What if there are substantial differences in marginal income tax rates among members of different family generations? The use of Family Companies might allow for tax opportunity shifting in a perfectly legal, and highly advantageous, way.

Clients who think this may apply should all the firm. For those who use the team approach (attorney, CPA, financial planner), we will contact your other advisors to craft a strategy. For thosse who do not have CPAs or financial planners on board, we will evaluate the applicability of strategies and recommend other advisors as needed.

Advisors can provide additional value to their clients be being aware of this issue and raising the possibility of tax savings with clients who have loved ones in assisted living arrangements.

As always, we welcome new clients to the firm and will give them the same great service and cutting edge advice that we offer our existing valued clientele.