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. 8) 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.