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Tax Deductions on CCRC Fees

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There comes a time in the later chapters of one's life when a decision must be made about senior housing and elder care. Many elders prefer to stay at home for as long as possible. Others choose to establish a new home that offers some level of daily personal care. Continuing Care Retirement Communities (CCRCs) are facilities that offer multiple housing and personal care options. For example, in one community, there may be individual apartments, an assisted living facility, a nursing home and a memory care facility.

Typically, residents pay what is referred to as an "entrance fee" when moving into a CRCC, along with ongoing monthly fees. Importantly, the CCRC fees allow residents to move from one level of care to another as their needs change over time.

Unbeknownst to many, the Internal Revenue Service (IRS) has determined that a portion of a CCRC's entrance and monthly fees, which are attributed to medical care and expenses, are tax deductible for certain individual taxpayers.

Generally, Section 213 of the Internal Revenue Code (IRC) allows an individual taxpayer to deduct any expenses paid during the taxable year for the medical care of the taxpayer, his or her spouse and dependents. These expenses can not be otherwise compensated for by insurance. The term "medical care" includes money paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.

In a 2016 publication on medical expenses, the IRS clarified that medical expenses under IRC Section 213 include medical expenses paid to a retirement home in either a lump sum as a "founder's fee" or as a monthly payment. The agreement with the CCRC must require that the payment of fees is in exchange for the CCRC's promise to provide lifetime care including medical care.

Of course, there are some caveats. First, the medical expense deduction only applies to individual taxpayers who elect to itemize their deductions rather than take the standard deduction. Further, the deduction is allowed only to the extent the amount exceeds 7.5 percent of the taxpayer's adjusted gross income. Finally, while it is clear that the deductions are available for residents of CCRCs, the IRS has been less clear on determining the deduction amount.

So what does this mean? As individuals are looking for long term care for themselves or a loved-one, there may be more choices of facilities available when considering the various tax deductions.

It is important to understand the different legal and financial aspects of entering into senior housing when considering the various elder care options. Finally, those who are current residents of CCRCs, may need to work with their CCRC to obtain the financial information required to calculate potential tax deductions.

Planning for senior housing and elder care is an important aspect of estate planning for senior individuals and couples. Levine & Levine attorneys have experience representing clients who reside in Continuing Care Retirement Communities and other senior housing facilities, or are planning a transition into senior living. If you have questions regarding senior housing options or general estate planning, contact Levine & Levine.

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