The Tax Court’s decision back in 2004 is great news for those living in a Lifecare Continuing Care Retirement Community (CCRC). The decision confirms that a resident can continue to treat a significant percentage of the one-time entry fee and a recurring monthly fee as a prepaid medical expense regardless of the level of utilization for such services.
Bill Bischoff stated in his Wall Street Journal Social Network article, that in order to be eligible for such a medical tax deduction, the IRS requires that “a person must enter into a CCRC-like contractual lifetime-care arrangement in order to claim current medical expenses deductions for amounts paid to the community that doesn’t depend on the level of medical services actually provided to that person.”
In other words, such a deduction is only available to residents living in a true Lifecare retirement community, regardless of whether there was any utilization of health care services during that particular year. This is not the case with a “fee-for-service” or “pay-as-you-go” type community.
Tax Deduction Information
Among the many continuing care retirement community advantages are CCRC tax
benefits. In a true-Lifecare community, you can deduct a portion of the entry fee paid in the first year as well as a percentage of the monthly fees paid each year as prepaid medical expenses.
Even if the resident is currently healthy and does not need a higher level of care, a
deduction is allowed for what is really prepaid medical expenses in a CCRC. There is a
threshold of 10% of adjusted gross income for medical expenses, but the year you pay
the entry fee, you can end up with a significant CCRC tax deduction.
Each year the percentage varies as it is dependent on the actual utilization of health
care services and related expenses. The medical tax deduction for residents historically runs between 35%-45% of the monthly fee and 55%-65% of the non-refundable portion of the one-time entrance fee plan.
Each year, CCRC facilities provide residents with a written notice outlining the calculated percentages. Anyone moving into a Lifecare CCRC should consult with his or her personal tax advisor regarding the tax implications of the deduction on their personal tax Return.
One of the biggest advantages of living in a CCRC is the ability to increase or decrease a resident’s care needs. As the need for medical care increases, the resident does not need to worry about relocating or having to find care independently.
