Tax Court Decisions Provide Clarification on Long-Term Care Expense Deductions

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Gavel1 150x130 Tax Court Decisions Provide Clarification on Long Term Care Expense DeductionsTwo recent U.S. Tax Court decisions have provided some clarification on when long-term care expenses are deductible.

In Estate of Lillian Baral, the Court ruled that payments to non-medical caregivers are deductible as medical expenses.  Lillian Baral suffered from dementia and her physician recommended to the family that she get 24-hour care.  Caregivers were hired to provide Ms. Baral with help for her daily activities, and she deducted the expense of those caregivers on her taxes.

The IRS contended that the expenses were not deductible; however, the Court found that the expenses were entitled to be deducted because Ms. Baral did suffer from a chronic illness and her doctor had found that the services provided to her were necessary.

In Estate of Olivo v. Commissioner, the Court ruled that a written agreement needs to exist between a patient and a live-in caregiver who is a relative in order for expenses to be deducted.  In this case, Anthony Olivo of New Jersey provided full-time care to his mother for almost a decade.  When she died, he filed a return claiming $1.2 million as a debt that he said her estate owed him for his long-term care services.

Olivo contended that a verbal agreement existed between he and his mother that the estate would compensate him upon her death; the Tax Court ruled that Olivo was not entitled to the deduction since, under the laws of New Jersey, it is presumed that services to a family member living in the same household are provided for free.  Without a written agreement, the Court had to assume that Olivo provided the services to his mother free of charge.

Preparing properly for long-term care is one of the best reasons to create an estate plan; contact our Orange County estate planning law firm to get started on yours today.

Contact us today for individualized planning strategies to meet your unique needs.

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