As we’ve written about in the past, residents of continuing care retirement communities (CCRCs or “life plan communities”) often are able to take a tax deduction on a portion of their monthly fee (and even on any non-refundable portion of the entry fee in the first year).
This deduction is available under Section 213 of the Internal Revenue Service Code and is described in IRS Publication 502 under “lifetime care.” For CCRC residents who qualify for this tax deduction, the deductible amount may be upwards of 40% of their CCRC fees in some cases, which can make a sizeable difference to the pocketbook. It should be noted that the CCRC fee deduction is only available to those residents who itemize their taxes. And with a 2023 standard deduction of nearly $14,000 for single filers and $28,000 for joint filers, far fewer people itemize their taxes than in the past. However, for CCRC residents who qualify for the deduction, they may find that itemizing works out better. As always, this is a conversation you need to have with a qualified tax professional before making any decisions.
Is the tax deduction available to all CCRC residents?
Relatively speaking, the CCRC-related tax deduction is typically higher for residents who hold a lifecare contract than it is for other types of CCRC residency contracts. Why? Because all other things being equal, CCRC residents with a lifecare contract pay more on the front end to help offset the cost of potential medical expenses later. In essence, some portion of their fee is going into a healthcare reserve fund for future healthcare expenses. It is this portion of the monthly fee that may be deductible as a pre-paid medical expense.
>> Related: Learn about CCRC contract types
Looking at it another way, if the monthly fees at a life plan community are mainly covering things like hospitality services and amenities then very little — if any — portion of the fees should be deducted. The exception may be if it can be shown that the swimming pool, for example, is necessary to combat a specific medical condition or illness of a resident. But expenses that only promote general health and fitness should not be deducted.
CCRC tax status
We’ve observed over the years that there are some people who think this tax deduction is only available at non-profit CCRCs. It’s easy to see why someone may think this because we tend to associate tax-deductible contributions with non-profit organizations.
However, it is important to know that the CCRC tax deduction described above is not a charitable contribution. Instead, it is an expense, and therefore it’s simply a matter of whether any portion of that expense qualifies as a medical expenditure, either for care being received today or as pre-payment for care that may be received in the future. (This is also why premiums may be deductible for qualified long-term care insurance policies, even though the policyholder does not yet require supportive services.)
In fact, anyone who has substantial medical expenses over the course of a year may qualify for a medical expense tax deduction, regardless of whether they live in a life plan community or not. But the difference is that for residents of CCRCs, there may be additional expenses that can be added to the calculation when determining whether they meet the threshold for a deduction. Again, the deduction is only available if you itemize your taxes.
The above information is general in nature and should not in any way be considered personal financial or tax advice. Please consult with a qualified tax or financial professional about your unique situation before making any decisions.
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