If you saw President Trump’s recently proposed tax plan, you may have been struck by several things.

First, its brevity. The country’s current tax code is a monster at tens of thousands of pages long. The plan proposed by Trump was a mere one page. Talk about concise!

There were aspects of the plan that have garnered widespread support from Americans, such as the proposed elimination of the estate tax (that is, taxes on assets that are transferred through a will or living trust) and lowering taxes on small businesses. However, there was one proposed item in the President’s plan that has caused concern among people in the continuing care retirement community (CCRC, also called a life plan community) industry and seniors in general, although it’s impact wouldn’t be limited only to these populations.

The Trump proposal calls for the elimination of itemized tax deductions other than charitable donations, certain retirement savings contributions, and mortgage payments. Treasury Secretary Steve Mnuchin stated that this provision would close “loopholes” and also would offset the plan’s proposed decrease in the base tax rate of high-income Americans.

On the surface, this may sound like a positive–surely it would simplify the daunting process of completing your tax returns–but there’s a catch that shouldn’t be overlooked, especially for older Americans.

Fewer deductions for CCRC residents?

Currently, if you itemize deductions, as opposed to taking the standard deduction, the IRS allows you to deduct qualified medical expenses that exceed 10 percent of your adjusted gross income (AGI) for the year. AGI is calculated by taking your taxable income and subtracting any adjustments to income such as deductions, contributions to a traditional IRA, etc. Among other things, eliminating the vast majority of itemized deductions would mean getting rid of the medical expense deduction at the federal level.

Under current tax laws, deductible medical expenses include things like health insurance premiums (including Medicare premiums), long-term care insurance premiums, prescription drugs, the cost of assisted living and nursing home care, and many other out-of-pocket healthcare-related costs–expenses frequently incurred by older Americans. It should be noted that Trump’s tax plan also calls for doubling the standard deduction, so there are some who may come out better by taking the new standard deduction even if medical tax deductions are abolished.

But for those living in a CCRC, eliminating the medical tax deduction could have yet another impact. Under today’s tax code, seniors who itemize their taxes are often able to deduct a portion of their CCRC fees as pre-paid medical expenses. Here’s why: The entrance fee and monthly fee paid by CCRC independent living residents represent a sort of “pre-payment” for future assisted living or skilled nursing care. This is usually the case with a Type-A (lifecare) residency contract, and to some extent, also with a Type-B (modified) contract.

>> Related: Explanation of CCRC Contracts

So, while CCRC entrance fees can be substantial, and the monthly fees are usually higher than the rent for a comparably sized house or apartment (one that does not offer lifetime access to healthcare services), the ability to deduct a portion of these payments as a medical expense can save CCRC residents a quite a bit of money on their taxes.

The real-world impact of cutting medical expense deductions

Here in North Carolina, we are keenly aware of the impact Trump’s proposed tax code change could have on seniors and others with hefty medical costs. In 2013, our state legislature passed a tax reform bill, which among other things, eliminated the medical expense deduction at the state level. Like Trump’s proposed plan, the North Carolina law provided deductions for charitable contributions and mortgage expenses, but also similar to the President’s plan, our state’s legislation eliminated the deduction for medical expenses.

This North Carolina tax change took effect on January 1, 2014 with little fanfare. Only when residents with high medical expenses filed their 2014 state income taxes did many come to appreciate how substantial the medical expense deduction had been for them. The average additional state tax paid by people who were impacted was a hefty $1,800–and that’s just the average. Obviously for some, it was even more.

Certain groups and individuals in North Carolina had opposed this state tax code change from the beginning, seeing the writing on the wall for those with high medical expenses. These groups–for example, the North Carolina Continuing Care Residents Association (NorCCRA), which represents almost 20,000 residents in non-profit CCRCs across the state–worked diligently to make their voices heard, and as a result of their pressure, in 2015, the North Carolina General Assembly reinstated the medical expense deduction.

>> Related: Is Your Retirement Community Entry Fee Tax Deductible?

A tax law change that could cost you

Although we all know that the current version of the Trump tax plan likely won’t pass as-is, it is important for people–especially those in their retirement years–to understand the real-life ramifications of such proposed changes to the tax code. Of great importance: If the President’s plan passes in its current form, the medical expense deduction would be eliminated at both the federal and state level since states use the federal IRS tax code as their model. If this is concerning to you, consider contacting your Representatives and Senators.

That being said, even if this tax change does ultimately go into effect, there are still numerous reasons to consider a CCRC that extend far beyond the potential tax deductions. The sense of security felt by CCRC residents, knowing they will have ready access to care services should they need them, is priceless to many. To learn more about CCRCs in your area, visit our online community search tool, which includes profiles on over 500 CCRCs across the county.

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