Taxes have been a hot topic over the past few weeks and months as the president and GOP-controlled Congress try to push through changes that will impact millions of Americans—raising the tax bill for some while lowering it for others. If you’re like me, you may be trying to figure out which of these two buckets you will fall into with the scenarios being proposed.

If you are among the approximately 850,000 people living in the roughly 2,000 continuing care retirement communities (CCRCs, also called life plan communities) across the United States, some of the various tax changes being floated could negatively impact you.

An end to health expense deductions?

First, the House plan working its way through Congress would eliminate the medical tax deduction, which allows people who itemize to write off qualifying medical and dental expenses that exceed 10 percent of their adjusted gross income (AGI). AGI is calculated by taking your taxable income and subtracting allowable adjustments to income such as deductions, contributions to a traditional IRA, etc.

Currently, individuals can deduct their own medical expenses as well as those of their so-called “tax dependents,” which for some people may include a spouse or even aging parents who live with the individual. This is a tax deduction that approximately 6 percent of filers currently take—often people with expensive care needs such as seniors in nursing homes and people with chronic medical conditions.

For some CCRC residents, eliminating the medical tax deduction could have yet another impact. A portion of the entrance fee and monthly fees paid by some independent living residents in CCRCs are essentially a “pre-payment” for future assisted living or skilled nursing care, should they need it. Under the existing tax code, seniors with a Type-A (lifecare) residency contract, and to some extent, also with a Type-B (modified) contract who itemize their taxes are often able to deduct a portion of these CCRC fees as pre-paid medical expenses, again, if that expense plus other medical expenses exceed 10 percent of their AGI. If the medical expense tax deduction is eliminated, this could result in a sizable lost deduction for many CCRC residents.

>> Related: Proposed Tax Change Could Be Costly for Older Americans

Those who are in favor of these proposed changes say that even though various deductions, such as the medical expense deduction, would be eliminated, the tax bill will ultimately help the middle class because the standard deduction is being raised from $6,350 to $12,000 for single tax payers and from $12,700 to $24,000 for joint filers. But for many people, the increase of the standard deduction will not offset the loss of the medical expense deduction they have been able to claim.  This may be especially true for those who live independently in CCRCs as well as those who require assisted living or long-term care services, which, depending on the level of care, can cost upwards of $100,000 per year in some states. Losing the medical expense deduction would further increase the likelihood that they will exhaust their savings and end up on Medicaid, thus ultimately increasing the cost to the government.

Punished for planning ahead?

I’ve heard from quite a few consumers over the last few weeks who live in a CCRC currently, and each has expressed a similar frustration over these proposed tax changes, saying that by choosing to live in a CCRC, they have proactively taken steps to plan for their future long-term care needs, rather than spending down their assets and relying on the government to eventually pick up the bill for their care. But they now could lose this valuable deduction they have come to count on each year.

You can read more about how the elimination of the health expense deduction might impact seniors in this Money article.

>> Related: Will My Refundable Entry Fee Be Taxed?

Eliminating not-for-profits’ tax-exempt debt option?

While you may have been aware of the potential impact of eliminating the medical deduction, a separate provision being proposed in the House plan would also eliminate the issuance of tax-exempt debt for developing and preserving non-profit facilities by eliminating the use of “private activity bonds.”

Although private activity bonds have been criticized by some for diverting public funds toward private projects, they definitely have an upside: encouraging the construction of not-for profit senior living communities and CCRCs, including affordable senior housing, along with other socially beneficial investments made by state and local governments, such as infrastructure improvements and disaster zone recovery projects. If this tax-free option for managing debt is abolished under the new tax plan, it will eliminate yet another incentive for companies to construct and maintain quality housing options for older Americans.

“The bigger issue no one is talking about”

I had a chance to sit down for breakfast with a good friend of mine who is the managing director of public finance for a large national bank. When I asked him about the proposal to eliminate the use of private activity bonds, he said there is a bigger issue that no one is talking about.

He explained to me that regardless of whether private activity bonds are abolished or not, the cost of borrowing for non-profit senior living providers would rise substantially if corporate tax rates are lowered to, let’s say, the 20 percent level that President Trump is pushing. Here’s why: The main advantage of issuing private activity bonds is that, due to the tax-exemption, borrowers can issue this debt at a substantially lower interest rate than interest rates on taxable bonds. Furthermore, one of the main buyers of the private activity bonds is corporations. Therefore, if corporate rates are lowered to 20 percent, then a corporation could potentially earn just as much in after-tax interest by purchasing taxable bonds (see tax-equivalent yield)—keeping in mind credit rating differences.

In other words, the advantage of buying a private activity bond would be greatly diminished or eliminated. This means that senior living providers and other not-for-profit entities that issue debt to finance development would necessarily have to pay lenders a higher rate of interest, regardless of whether private activity bonds are eliminated or not. The ripple effect could be a strain on credit ratings for issuers due to higher financing costs—a double whammy.

Again, this would not only impact senior living but also state and local issuers who want to finance, among other things, infrastructure projects, which the current administration, oddly enough, has described as a priority.

Proposed tax changes…in a nutshell

According to the Urban Institute and Bookings Institution’s Tax Policy Center, by 2027, under the Senate’s current draft version of the tax plan, on average, the top 0.1 percent of Americans will get a tax cut of $208,060; the middle 20 percent will get a tax cut of $50; and the bottom 20 percent will get a tax increase of $10.

If you are concerned about how these proposed tax changes will impact you and the senior living industry, I encourage you to call your Congresspersons ASAP to make your voice heard. (A vote on the Senate’s plan is scheduled for this Thursday, the 30th. Prior to the vote the Senate will be in discussions with the about various provisions of this tax bill to try to find middle ground between the two bills.)

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