Deduction of Long Term Care Expenses
Internal Revenue Service
EXCERPTS FROM I.R.S. NOTICE 97-31 re DEDUCTION OF LONG-TERM CARE EXPENDITURES
We have taken excerpts from IRS Notice 97-31 in an effort to explain, in layman’s language, what is necessary to enable a taxpayer to take deductions for unreimbursed long-term care expenses at home, in assisted living, and in nursing homes. Although this Notice contained guidance and information about both long-term care insurance and long-term care services, for simplicity’s sake, we have deleted the references to long-term care insurance.
Released: May 6, 1997
Published: May 27, 1997
This Notice from the Internal Revenue Service provides interim guidance for taxpayers about the definition of a “chronically ill individual” for purposes of the definitions of “qualified long-term care services”for deductibility under Code section 213(d). The applicable Sections of the Internal Revenue Code are §§ 213, 7702B, and 4980C.
In 1996, long-term care provisions were added to the Internal Revenue Code making certain expenditures incurred for qualified long-term care services required by a chronically ill individual deductible as medical care expenses for those who itemize their deductions.
The notice involves interim guidance about the definition of a “chronically ill individual,” including safe-harbor definitions of the terms “substantial assistance,” “hands-on assistance,” “standby assistance,” “severe cognitive impairment,” and “substantial supervision.”
CHANGES IN THE LAW IN 1996
For taxpayers who itemize deductions, §213 allows a deduction for “medical care” expenses paid during the taxable year which are not reimbursed by insurance or otherwise, to the extent that the expenses exceed 7.5 percent of the taxpayer's adjusted gross income. These expenses include those of the taxpayer, his or her spouse, and dependents.
Section 213(d) was amended in 1996 include in the term “medical care” amounts paid for “qualified long-term care services” (as defined in § 7702B(c)).
Section 7702B(c)(1) defines “qualified long-term care services” as necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services that are required by a chronically ill individual and are provided pursuant to a plan of care prescribed by a licensed health care practitioner.
CHRONICALLY ILL INDIVIDUAL
Section 7702B(c)(2)(A) defines a “chronically ill individual” as 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 two (2) out of six (6) activities of daily living listed in § 7702B(c)(2)(B) (ADLs) for a period of at least 90 days due to a loss of functional capacity. This is called the “ADL Trigger”. The six (6) listed ADLs are eating, toileting, transferring, bathing, dressing, and continence; or
(ii) having a level of disability similar to the level of disability described in the ADL Trigger as determined under regulations prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services. This is called the “Similar Level Trigger”; or
(iii) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment. This is called the “Cognitive Impairment Trigger”.
Taxpayers may rely on this interim guidance to determine whether an individual is a “chronically ill individual” under the ADL Trigger or the Cognitive Impairment Trigger for purposes of the definitions of “qualified long-term care services” in § 7702B(c) and “medical care” in § 213(d).
The ADL Trigger. For purposes of the ADL Trigger, taxpayers may rely on all or any of the following definitions—
(1) “Substantial assistance” means hands-on assistance and standby assistance.
(2) “Hands-on assistance” means the physical assistance of another person without which the individual would be unable to perform the ADL.
(3) “Standby assistance” means the presence of another person within arm's reach of the individual that is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL (such as being ready to catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or being ready to remove food from the individual's throat if the individual chokes while eating).
An individual is a “chronically ill individual” under the ADL Trigger only if a licensed health care practitioner has certified that the individual is unable to perform (without substantial assistance from another individual) at least two (2) ADLs for a period of at least 90 days due to a loss of functional capacity. This 90-day requirement does not establish a waiting period before which benefits may be paid or before which services may constitute qualified long-term care services.
The Cognitive Impairment Trigger. For purposes of the Cognitive Impairment Trigger, taxpayers may rely on either or both of the following definitions—
(1) “Severe cognitive impairment” means a loss or deterioration in intellectual capacity that is (a) comparable to (and includes) Alzheimer's disease and similar forms of irreversible dementia, and (b) measured by clinical evidence and standardized tests that reliably measure impairment in the individual's (i) short-term or long-term memory, (ii) orientation as to people, places, or time, and (iii) deductive or abstract reasoning.
(2) “Substantial supervision” means continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).
Practically, it would appear that a licensed health care practitioner (doctor, registered nurse, etc.) should prepare a letter after evaluating the individual certifying that he/she is “chronically ill” based upon the above criteria in order to take advantage of the Section 213 medical deduction.
We strongly advise you to review your individual situation with your attorney or certified public accountant.
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