A little-known tax break could help offset the cost for people considering a continuing-care retirement community (CCRC). With CCRCs, you pay a one time entry fee and ongoing monthly charges. In exchange, the CCRC provides housing and a range of accommodation, medical and other services. The level of services can be increased as your needs require. With traditional retirement homes, you pay a monthly fee.
The good news with a CCRC is that you don’t have to move as your needs change. The bad news is that the entry fee can be high, exceeding the upper six figures in locations where real estate is expensive. Monthly fees can also be expensive.
That said, a tax break can offset part of the entry fee and monthly fees. That’s because a percentage of CCRC costs can be considered medical expenses for tax purposes, even if the resident requires no medical care. How? Because the amount of CCRC fees considered medical expenses does not depend on the level of medical services you actually receive from the CCRC. It depends on the CCRC’s aggregate medical expenditures in relation to its overall expenditures. And you can write off those medical expenses to the extent they exceed 7.5% of your adjusted gross income.
A CCRC should be able to give you estimates of those percentages, but you may have to ask for them. Your financial advisor can provide you with guidance.
The tax and legal information in this article is merely a summary of our understanding and interpretation of some of the current laws and regulations and is not exhaustive. Investors should consult their legal or tax counsel for advice and information concerning their circumstances.