What is the tax situation of someone in nursing home?

The answer is "It depends". You would need to consult a tax preparer or CPA in your state/county to answer your question. Depending on the level of care, number of prescriptions, etc. would dramatically change whether you were in custodial care only or skilled nursing. The tax situation would be dependent on what state you live in and what types of deductions are available. The IRA withdrawal would be dependent on your age at withdrawal and type of IRA (Roth, etc). Please talk with an elder care attorney familiar with Medicaid in your area. Look at some nearby facilities and get pricing (which will be more money when you need it as prices are only going up). A good attorney working with a CPA or tax consultant will be able to advise you on what expenses are deductible for federal and state purposes, what types of trusts if any are appropriate depending on your condition, etc. You might be surprised how far your money WON'T go if you need a high level of care, and many LTC policies require 6 months of self-pay and multiple requirements be met before they'll pay. Attorney can help review your policy to make sure you maximize it. Good thinking ahead.

You can afford $86,000 - $90,000 a year? You best bet is get her on Medicaid. You must be extraordinarily wealthy if you pay $86,000 a year for taxes. I figure you must make at least $200,000 a year income.

Health care cost including Private Pay Nursing Home And Assisted Living are a Deductible Expense

When I want to figure out this kind of thing I do a hypothetical tax return, there should be free software available online.

My in-laws have to pay taxes every year and both are in assisted living. It all depends on how you set up your retirement. SS is taxable. If you had a Roth IRA that simple means you pay the taxes before investing and IRA is taxable when you withdraw money, which is a requirement at 70.5 years of age. I withdraw the minimum amount monthly. I do not have a retirement income because my IRA is my retirement money.
We have to go through this every year for myself and my wife is the POA for parents. Her father recently passed away I don't know how this will work with only her mother living in assisted living.
Because my father-in-law chooses not to have taxes withheld out of his retirement he had to pay the taxes on the back end, as do I. It is best to have a good CPA. which it'll depend on how your retirement accounts were set up.

If you have LTC insurance then paying should not be as much of a problem as it might be for others.
The "good" thing is that some of the costs of Assisted Living or Memory care facility might be able to be written off as a Medical Deduction.
I suggest you talk to 2 important people in this equation.
1. A good lawyer that specializes in Elder Law.
2 A good tax preparer, CPA or Accountant that is aware of Elder Law and how best to complete an accurate Income Tax Form .

Thanks for the responses. I realize I am very fortunate to have a good income, but my late husband and I worked hard and saved a lot. So now I have two pensions and two IRAs, plus an annuity from the sale of our house in 2012. Since he died at age 71, I wish we had spent more while he was alive. I travel alone now and am putting my granddaughter through college. My income taxes are usually $25-$30,000 a year, as I don't own property (and don't want to) and have no deductions. Part of my income is through a part-time editing job, but I don't plan to work past age 80 and that will be a year from this coming Feb. Actually my taxes are more than I make from that job! I am trying to figure out if my LTC insurance plus income will cover nursing home or memory care and decided that it would do so easily if I didn't have that hefty income tax bill. Obviously I won't be spending money on travel if I am in memory care, but should I stop traveling now and start saving again?

At 79 young, my vote is for you to continue doing whatever you enjoy...and make sure your Advanced Health Care directive is up to date. Go girl!!!

All of the numbers I am using in this example are just estimates, but hopefully will give you an idea of how the taxes would be calculated. Working backwards, if your Federal Income Tax is $25K to $30K, you must have income in the $130K to 150K range. Of course, your taxable income would be less after deducting the 15% of SS that is not taxable and the standard deduction and personal exemption amounts. If you required nursing home care at a cost of $100K per year and your long term insurance pays $40K of that, the other $60K would become a deductible medical expense. You can also count any amounts paid for Medicare parts B and D, a medicare supplemental plan, and any out-of-pocket amounts paid for dental care, eyeglasses, co-pays, transportation to medical care, etc. Let us assume that these costs total $5,000 for the year. From the $65K total you would need to subtract 7.5% of your adjusted gross income, which in this example would be about $11,000. This results in an itemized deduction of $54,000, which exceeds your standard deduction of about $7,500 by $46,500. If you have no other itemized deductions such as charitable contributions, personal property tax or state income tax, you would "save" the tax on that $46,500. The tax savings would be about $13,000. So, it looks like your tax bill would be reduced by about half. If my assumption about your income is accurate, it looks like you would have adequate funds to pay your nursing home costs and the tax amount. Again, these are just estimates based on the limited information provided in your question. An accountant or tax preparer will be able to give you exact information.

Moms yearly income is a small pension and SS. She got a letter years ago saying she no longer had to pay income taxes because of her income. Her CDs were from insurance money. She had enough for a year in AL.

Excellent analysis, AKDaughter.

Thanks so much akdaughter. this makes a lot of sense. I usually do my own taxes as I have no deductions but the standard, but I can see that I--or my children--will have to get a tax preparer if I go into a nursing home. My children are getting a lot of experience in handling this for my ex-husband, so I guess I will quit worrying and let the chips fall where they may. I worry about getting Alzheimer's because I carry one copy of a gene for the late onset type. My great-grandmother had it, but my grandfather and my mother died before they were 80 from other causes. They were both becoming forgetful, but not to the extent they couldn't perform the 5 daily activities.

When I took my friend for whom I am POA and who is in memory care to the tax preparer last April, I was told that all his expenses were tax deductible and they were higher than his income, so there was no tax obligation. He is still having taxes withheld on his income, but I expect we will change that this coming year if the results are like last time. It's neat that you can still earn so much income at your age--way to go!

Arleeda I can not answer Your Q simply because I'm not from the US, and every Nation has different rules.
Just to say You have paid heavily into Your State System all of Your Life, and
You are well and truly entitled to claim tax back when You have a Love One in a Nursing Home Care Facility. THERES NO KNEED TO JUSTIFY YOURSELF GIRL.
Decatur's reply will give You the answer You seek.

Arleeda, you will be able to deduct your out of pocket expense for the nursing home, but not the part that LTC is paying for. That will significantly lower your income. You will NOT be eligible for Medicaid, due to the large gift of college support you are giving to the granddaughter. Time to stop that.