Are you living in or planning to move to a continuing care retirement community (CCRC)? If so, you might be wondering how to maximize your savings when it comes to tax time. CCRCs vary in how they deliver and charge for resident care. We understand that certain tax benefits could play a role in helping you choose the right retirement community.
This guide may help clear up some of the complexities of medical expense tax deductions while in retirement and living in a CCRC. Please be aware that this guide is for informational purposes only and does not constitute legal, accounting or tax advice. Always consult with your accountant or tax preparer before making any decisions.
Continuing Care Retirement Communities vs. Traditional Retirement Communities
First, let’s discuss the differences between a CCRC and any other retirement options. Every senior living community operates differently, and their tax implications vary.
CCRCs, also known as life plan communities, are different from other senior living options. Before CCRCs, older adults often had to move to different facilities as their care needs changed during certain times in their lives, even if the moving process could be stressful.
Alternatively, CCRCs allow residents to “age in place.” These communities provide a tiered approach that adjusts to residents’ needs. This continuum of care eliminates the one-size-fits-all approach and enables residents to move through various levels of care while living in the same community. CCRCs are sometimes considered a combination of other types of senior living communities, offering a complete range of long-term care ranging from independent living to full-time care.
Why Do CCRCs Charge an Entrance Fee and How Much Is It?
An entrance fee is paid at entry to secure your admission into the community. This one-time fee is a payment to receive the continuum of services you may need while living in the community. Every community has different types of entrance fee plans and costs. A monthly fee is charged to cover many of the community services and amenities available. The entrance fee and monthly fee of your CCRC depends on many factors, including:
- Location
- Size of facility or campus
- Amenities
- Availability
- Housing
- Health and wellness services
Are CCRC Fees Tax Deductible?
According to the federal tax code, the entry fee or monthly fee you pay for care may be considered a tax-deductible medical expense. IRS Publication 502 covers these expenses and describes the nuances of including part of a monthly or lump-sum life care fee in medical expenses. Note that the availability and the portion of the tax deduction depend on the type of CCRC residency contract you receive. Always consult with your accountant or tax preparer before making any decisions.
How Does a CCRC Entrance Fee Tax Deduction Work?
Because CCRCs provide a full continuum of care spanning many services, including health care, a portion of the entry fee and/or monthly fee may be tax deductible. Your facility should be able to provide you with information that highlights the portion of your expenses that go toward medical care. Even if you do not currently receive medical services, they may still be deductible, as part of these fees are applied to medical care and considered a prepaid health care expense.
This means residents who live independently and do not receive health care services may still qualify for a CCRC entry or monthly fee tax deduction. However, this depends on your age and whether the medical expenses exceed a specific percentage of your adjusted gross income (AGI), typically 7.5%. According to the IRS, the AGI is your total income minus deductions.
Gross income includes:
- Wages
- Capital gains
- Dividends
- Business and retirement income
- Rents
- Tips
- Interest
- Stock dividends
- Other forms of income
Only take deductions on non-refundable portions of the entry fee. The type of CCRC residency contract you have will directly influence potential CCRC tax deductions and your monthly coverage and costs, so it’s important to consider your unique care needs.
Here’s a more in-depth look at different CCRC contracts and their tax implications:
- Type A: Known as an extensive life care contract, this is the most common type of CCRC contract. It generally offers more predictable costs and all-inclusive options for personal care, medical treatment and nursing. Residents with a Type A contract may be more likely to receive deductions, but these contracts are also the most expensive.
- Type B: Type B contracts, also known as modified contracts, are generally more affordable than Type A but still offer the possibility of deductions. Type B contracts are tailored to a resident’s current needs rather than their current and future needs. However, residents can pay for additional coverage as needed on top of their monthly payments.
- Type C: Residents with Type C contracts have a “fee-for-service” contract. Though they may still receive a tax deduction, residents only pay a monthly fee for the services they are using at the present time. They will pay for a higher level of care if their needs change in the future.
When Is the CCRC Entry Fee Deductible?
If you are eligible for the CCRC entry fee deduction, note that it is only available in the year you pay the entrance fee for your CCRC. You cannot spread out the deduction over several years. However, the monthly fee deduction may be allowed every year. Generally, if you’re eligible for a tax deduction on the entrance fee, you’re likely eligible for a deduction on the monthly fee on an ongoing basis as well.
With any of the above, remember that your health, living and financial situation are unique. Tax laws are complex, which is why you should always keep accurate records and consult with a certified tax professional who can recommend actions tailored to your specific circumstances.
Choose Cornwall Manor for Your CCRC in Pennsylvania
Please note that the above information is not intended to be tax or investment advice. At Cornwall Manor, we want to help our current and potential residents be informed about CCRC tax deductions by providing general guidance only. We recommend you consult with a tax professional for tax, legal or accounting advice.
As a resident of a CCRC or life plan community, you may be eligible for an entrance fee tax deduction. If you’re researching retirement communities, consider the benefits of a continuing care model that meets your unique needs and lifestyle. Cornwall Manor is a not-for-profit CCRC that offers a variety of accommodations with many services and amenities. With our fee-for-service model, you won’t be required to pay in advance for future use of services you don’t currently need.
We’re dedicated to supporting residents with a comprehensive variety of amenities and engaging events. We know how important it is to thoroughly understand your options before deciding on a retirement community. Call us or contact us online to schedule a visit and see what we have to offer at Cornwall Manor.
