In 2007, the last full year of her life, Lillian Baral suffered from dementia. She paid $49,580 for home health aides, $5,556 for health-related supplies and $760 in unreimbursed medical bills. She had an adjusted gross income of $94,229 that year but failed to file an income tax return. After her death the IRS determined that she owed $21,397.43 in tax, interest and penalties. The executor of her estate sought a deduction for medical expenses. That deduction was initially denied. The executor also asserted that the decedent’s dementia excused her failure to file her income tax return and that the burden of proof on this issue was on the IRS. At the Tax Court he conceded these issues leaving open only the question of whether a medical deduction for her home care expenses was appropriate.
People who are paying privately for long-term care at home frequently overlook the valuable income tax deduction for unreimbursed medical expenses. This deduction can ameliorate the high cost of care. The average cost for home health care in the New York City is $19 per hour, according to the John Hancock Cost of Care Survey 2011. If the patient requires 12 hours of care per day, the cost would be $83,220 per year. Confusion about this issue is largely based upon the fact that these expenses are not covered by Medicare or traditional health insurance because the care can safely be given by someone without a medical degree. This is called custodial care.
