Jewish World Review Dec. 13, 2004 /30 Kislev, 5765
Jan L. Warner & Jan Collins
The long path to deducting at-home care
Q: My wife was diagnosed with Alzheimer's disease four years ago at age 74. Her condition continues to deteriorate to the extent that she needs assistance with most of her activities. I have had to hire people to come in to help me keep her at home because she wanders. She has also become very aggressive toward me. I can't leave her alone, but we don't have nursing home insurance, and we don't have enough income to pay for her care.
I recently began selling some of the stocks I acquired at very low prices while I was working, and know that I will be hit with federal and state capital gains taxes. I have read that I can deduct the cost of a nursing home (which I can't afford for too long) if she goes there, so my question is whether I can deduct the cost of the two people I have hired, whom I am paying $8 per hour in cash (about $500 weekly). If not, our money will run out much faster.
A: You're facing problems that a growing number of American families are when it comes to dealing with long-term care:
A fixed income with no long-term-care insurance
The need to preserve assets for the unafflicted spouse
The desire to keep the afflicted spouse at home for as long as possible (and also avoid high monthly nursing home fees)
Wanting to get the "most bang for the buck" by saving as much in taxes as possible through the use of the medical deduction
Before Congress enacted the Health Insurance Portability and Accountability Act of 1996, there was uncertainty about whether the cost of hired personal attendants could be deducted. But this federal law expanded the definition of "deductible medical expense" to include a wide range of services provided in the long-term-care area, including maintenance or personal care services in the home.
That is, assuming your wife's care qualifies:
Within the 12 months prior to filing your taxes, a licensed health care practitioner (such as a doctor, registered nurse or social worker) must determine your wife to be a "chronically ill individual," and the required services performed based on a prescribed "plan of care." Plans of care are routine for patients at Medicare- and Medicaid-certified facilities, but less common for those who reside at home or in residential care facilities. To be considered "chronically ill," a licensed health care practitioner must deem your wife to have a severe functional or cognitive impairment.
Functional impairment means she must need substantial help performing at least two of the six specified activities of daily living (eating, toileting, mobility, bathing, dressing and continence) for at least 90 days. Cognitively deficient (a test primarily aimed at those with Alzheimer's or other severe dementia) means your spouse has a severe cognitive impairment that requires substantial supervision to protect her health and safety.
Under these guidelines, the cost of most personal aid attendants can be deductible as medical expenses to the extent they are not classified as "maid service."
However, it appears you have another hurdle to cross: Assuming the services are rendered according to a licensed health care practitioner's plan of care, in order to be able to take the medical deduction for services of personal attendants in your home, you must maintain specific, written records. This flies in the face of hiring personal care attendants on an informal basis, as you have done. Therefore, in addition your wife being certified as "chronically ill," and in addition to the necessity of a written plan of care, you should be paying required withholding on your providers who, it appears, are actually employees. So, paying cash is a "no-no."
If your wife's care will qualify for the deduction, we'd be surprised if you wind up paying much capital gains taxes. However, a word of warning: Make sure you contact the appropriate professionals to plan for your future because if your assets are exhausted by paying for your wife's care you could find yourself destitute.
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JAN L. WARNER received his A.B. and J.D. degrees from the University of South Carolina and earned a Master of Legal Letters (L.L.M.) in Taxation from the Emory University School of Law in Atlanta, Georgia. He is a frequent lecturer at legal education and public information programs throughout the United States. His articles have been published in national and state legal publications. Jan Collins began co-authoring Flying SoloŽ in 1989. She has more than 27 years of experience as a journalist, writer, and editor. To comment or ask a question, please click here.
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© 2004, Jan Warner