✨ Residence and Care Agreements

On the subject of tax deductions of fees for residents living in retirement communities, I have attached three articles that discuss the subject. It is not an easy subject to master. The articles might be helpful for anyone who wishes to make the case with their CCRC management that the CCRC should make every effort to determine medical deductions which are available to residents.

Gerard Hyland

Jennifer,

By definition, a Type A contract (Life Care) means that the independent living resident pays “extra” in the entrance and/or monthly fees so that transferring to a higher level of care later on does not in itself increase the monthly fee.  

For income tax purposes this is considered prepayment of medical expense, and thus is deductible.

By definition, a Type C contract (Fee for Service) means that the independent living resident doesn’t pay any of this “extra”. When such resident transfers to a higher level of care, he/she will be paying the market rate for that, and it is only then that this expense can be deducted.  

Accordingly, it doesn’t make sense that Type C IL residents would get the same deduction as Type A IL residents. If they got any deduction at all (for present-day health care covered by the monthly fee), it should be far less.

The “LifeCare Fee for Service” plan that you mention seems like a contradiction in terms.

Apparently your provider has come up with a new wrinkle.

Are you talking about the entrance fee or the monthly fee, or both?

(At a Type A CCRC I’m familiar with the 2022 entrance fee tax deduction is 26.2%, and the monthly fee deduction is $2,870 per month for Independent Living and 100% for Assisted Living and Skilled Nursing.)

No. Never received a tax letter. Been here since September 2015.

Our community offers both fee-for-service and equalized pricing Life Care contracts. In the past only Life Care residents would receive the annual tax letter. We're now under new ownership. This year the fee-for-service residents received a letter for the first time, giving the same percentages as those provided to LifeCare residents. These "new" letters stated the fee-for-service residents were on a "LifeCare Fee for Service" plan. In case some recipients might want to consider filing amended tax returns, the letter provided the percentages for 2019, 2020, and 2021.

This question is for the other communities in this listserv that offer fee-for-service contracts -- do your fee-for-service residents receive tax letters, and therefore maybe our community is just now "coming to the party"?

Personally, this is my second CCRC as a fee-for-service resident (Type C contract). At the previous one in a different state, we didn't receive annual tax letters from management. My parents were in a modified Type B contract CCRC, and the letter they received indicated a tax deductibility percentage in the neighborhood of 6-7%, about one-fifth of a typical Type A (LifeCare) contract. From what I've observed, the percentages for LifeCare seem be in the mid-30 percentage range. Now everyone on campus receives the letters, all getting the same percentages. This was a surprise to me, so I'm curious about what is going on elsewhere. 

Thanks.