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U.S. Tax Court Rulings Provide Critical Guidance on Long-Term Care Write Offs

Published August 30, 2011

Long-term care costs can add up quickly. The expenses to the individual and their loved ones can be exorbitant and compromise other financial plans. Two recent U.S. Tax Court decisions are critical for people dealing with chronic medical conditions. These rulings give direction on what needs to be done to write off health care costs on annual taxes.

In Estate of Olivo v. Commissioner (U.S. Tax Ct., No. 15428-07, July 11, 2011), the Tax Court ruled that the costs of a family member taking care of their parent can not be written off when there is an oral agreement. A family member can deduct the expenses incurred in taking care of their loved one when there is a written agreement between the two parties. Anthony Olivo said he and his mom had an oral agreement that she would repay him from her estate for taking care of her. From 1994 to 2003, he halted his law career and incurred $1.25 million in costs taking care of her. The Internal Revenue Service (IRS) and the Tax Court would have allowed this write off had there been a written agreement regarding this.

The second court case of Estate of Lillian Baral (U.S. Tax Ct., No. 3618-10, July 5, 2011) involves a woman with dementia that needed around-the-clock care per the recommendations of her doctor. Lillian Baral needed full-time supervision because of this cognitive impairment, so her son employed caregivers to help her. After she passed away, her estate appealed the expenses for her caregivers as the IRS initially denied the deductions for long-term care.

The U.S. Tax Court ruled that the care qualified as a deductible expense because her doctor authorized the need for long-term care. The caregivers did not have to be medical personnel. Medical care expenses can be written off when itemized taxes are done. In 2011, long-term care expenses can be deducted when costs exceed 7.5 percent of adjusted gross income. In 2012, this will increase to 10 percent.

Individuals and their loved ones should seek legal counsel early on when long-term care expenses become a reality. Proper estate planning to protect assets, plan for special needs, and utilize government benefits is critical.

A knowledgeable New York City, White Plains or Fishkill Elder Law lawyer will greatly assist you and your loved one to create a comprehensive plan to account for all the matters that come up with long-term care needs.

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