Surprising Tax Benefit of Some Senior Living Communities

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When seniors move into an independent living retirement community that also provides assisted living services, often called a Continuing Care Retirement Community (CCRC), they might mourn the loss of the tax breaks provided by mortgage interest deductions.

Take heart.

If your mortgage is close to being paid off, the percentage of principal you’re paying is much higher than the interest paid. You realized most of the tax benefits of mortgage holders much earlier in the loan.

But, even if you’ve been enjoying that mortgage interest deduction, you may be entitled to another surprising tax refund that will take away some of the sting. In fact, this tax deduction may seem almost too good to be true, so be sure to check with your tax accountant to make sure you’re doing it right and claiming all the deductions you deserve.

CCRC Benefits: Deductible as Medical Expenses
Continuing Care Retirement Communities typically provide medical care and assisted living services, which may be tax deductible as medical expenses if you itemize tax returns.

Sounds great, right? But what if you’re living independently in a CCRC, with the option to get assisted living and medical care as needed? You may still be able to deduct a percentage of both the entry fee and monthly fees as a medical expense. It’s like getting a tax deduction on future medical expenses and can add up to significant savings that can help recoup some of your moving costs.

Here’s how it works:

If you are under 65, you can write off medical expenses that exceed 10 percent of your adjusted gross income. In the first year of residence at a CCRC, when you’re paying entry fees plus monthly fees, it may be easy to reach that threshold.

And, if you have other medical expenses, including doctor’s and dentist co-pays, vision care (including glasses and contacts), psychologist or psychiatrist visits, as well as mileage or travel for medical care, exceeding that threshold will be even easier.

Take note: If you or your spouse will be 65 or older by December 31, 2013, the percent-of-AGI threshold drops to 7.5 percent. Providing you are the ones footing the bill for CCRC living, this can lead to a heftier deduction. In 2016, for taxes filed in 2017, the percentage will rise to 10 percent for people 65 and older, as well. (So if you’re contemplating a move to senior living, the time is now to realize the maximum tax benefits.)

If your children are paying for your stay in a CCRC, they are permitted to claim the deductions (at the 10 percent threshold if they are under 65) as long as they claim you as a dependent and pay for at least half of your care and living expenses.

Remember to save all receipts, not just related to your CCRC contract, but for prescription medications, medical co-pays, travel and any other allowable medical expense deductions. Caregivers may need to include their own children’s medical expenses in order to exceed the 10 percent threshold, so it pays to save all receipts for the tax year and consult an accountant if you’re not sure about the deductions you can claim.

The Fine Print
This deduction can really help seniors who aren’t sure if they can afford the move to a CCRC. But there are a few rules to be aware of in order to stay out of trouble.

Here’s the fine print:

  • You cannot deduct fees for amenities that promote general health and fitness, unless you can prove they are necessary to treat a specific medical condition or illness. This includes the senior living community’s pool, spa, gym or fitness classes.
  • You can only deduct the percent of entry fees and monthly fees that would go specifically toward covering medical care, not meals, room and board or maintenance.
  • To qualify for the deductions, you must sign a contractual lifetime care arrangement with the CCRC. Short-term nursing home stays without a lifetime contract are not eligible for the deduction.

Off-set Tax Penalties with Deductions?
If you are tapping into investments to pay for your move to a CCRC as an independent senior, these tax deductions could help offset any tax penalties you might experience. Likewise if you’ll be hit with capital gains taxes on the sale of your home.

It’s smart to speak with your financial planner before the move. Have someone help you run the numbers to determine if you can afford CCRC living, and just how much you can afford to pay, both upfront and monthly, to choose the right retirement community for you.

SeniorLiving.Net is a free service for families to use that are looking for senior care or senior living for a loved one. Call (866) 662-0435 to speak to your local Care Advisor about senior care providers in your local are.