Senior Living Tax Deductions
Older adults moving to senior living communities are essentially making an investment in their future to protect their health, lifestyle and financial security. However, many seniors today aren’t aware of the tax deductions and benefits available when moving into senior living communities. A common question is, “Are retirement community expenses tax-deductible?” The answer is yes – in part. There are a few key aspects to consider when seeking a tax break or senior living tax deduction. Generally, medical expenses, assisted living, and a portion of entrance and monthly fees can be considered partially tax-deductible if you live in a retirement community.
According to the IRS, any qualifying medical expenses exceeding 10% of the adjusted gross income for people age 65 and older can be deducted from taxes.Medical care is defined by the IRS as “costs of diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure of the body.” Also included in this definition is “qualified long-term care services” and “equipment, supplies, and diagnostic devices needed for these purposes.” For a full list of qualifying medical expenses, visit the IRS website.Any portion of the entrance fee and/or monthly fee that is considered a prepaid medical expense would need to be added to other medical expenses for the year to determine the total deductible amount.Other medical expenses you may be able to claim as tax deductions include:
- Out-of-pocket medical expenses not reimbursed by Medicare or other insurance
- Preventive care, surgery, treatments, dental care and vision care
- Premiums for qualified long-term care insurance, and health insurance premiums not paid for with pre-tax dollars
- Housing, food, clothing and transportation, and some home modifications if they’re required for medical care
- Specific disease treatments such as weight loss program and alcohol or smoking cessation
To determine your total medical expense deductions, the general formula to follow is:
- Medical Expense Tax Deduction = Sum of Qualifying Medical Expenses – (Adjusted Gross Income x 0.10)
- The IRS website also has a tool on their website to calculate your standard deduction.
Entrance Fee Deductions
Retirement community residents may be eligible to receive a deduction for the nonrefundable portion of their entrance fee. In most Life Plan Communities (also known as continuing care retirement communities or CCRCs), especially those that offer Type A Life Care and Type B contracts, a portion of your entrance fee is directly allocated to medical care and expenses. The IRS acknowledges that a portion of your total entrance fee qualifies as medical care. While this tax deduction is available at almost all Life Plan Communities/CCRCs, as well as at some communities that offer only assisted living, memory care or skilled nursing, the size of the deduction largely depends on the type(s) of residency contract(s) the senior living community offers.Because medical expenses are considered to be part of an entrance fee, community residents don’t have to receive health care services to be able to take the deduction. Independent living tax credits for seniors outside of assisted living, memory care or long-term care are typically available.
Assisted Living Deductions
For assisted living expenses to be a qualified tax deduction, the resident must be considered “chronically ill.” To be eligible, a physician or nurse must certify that a resident either:
- cannot perform at least two activities of daily living, such as eating, toileting, transferring, bathing, dressing, or continence; or
- requires supervision due to a cognitive impairment (such as Alzheimer’s disease or another form of dementia).
Additionally, personal care services must be provided according to a plan of care as prescribed by a licensed care provider.The difference between assisted living deductions and entrance fee or medical expense deductions is that if a resident is considered “chronically ill,” the resident’s room and board may also be considered part of their medical care, making room and board deductible.
Financial Security at Freedom Village of Bradenton
The rising costs of health care are a major concern for today’s seniors. Continuum-of-care communities like Freedom Village of Bradenton are designed to safeguard the financial stability of our residents. Here, entrance fees, medical expenses and assisted living expenses qualify for senior living tax deductions. However, we strongly recommend consulting with your personal financial advisor to determine qualified deductions. Veterans programs and other forms of tax deductions may also be available to those who qualify. At Freedom Village of Bradenton, we’ll do everything in our power to work with you and your family to ensure your lifestyle, health, and finances are secure so that you can enjoy retirement the way you want. To learn more about our stunning community, contact us through our website or call us at 941-210-6153.