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Tax Break Helps Pay for CCRC Fees

Last Updated: 6/15/13

Continuing Care Retirement Communities (CCRCs) -- which offer the entire continuum of care under one roof -- are an appealing retirement housing option, but they can be very expensive.  The good news is there is a little-known tax break that can help defray the costs.

CCRCs offer a range of services from independent housing to assisted living to round-the-clock nursing services. When moving into a CCRC, residents enter into a contract that usually includes a hefty entrance fee that may or may not be refundable. The residents pay a monthly fee as well. Entry fees can run from $20,000 to more than $500,000, with monthly charges ranging from $200 to $3,500 or more. 

If your medical expenses are more than 7.5 percent of your adjusted gross income (beginning in 2013 the figure is 10 percent for those under age 65), you may be able to deduct some health care costs from your taxes. Because CCRC's provide a full range of health care services, when residents enter a long-term contract with one of these facilities, they are contracting for future health care. If the CCRC's entrance fee is non-refundable, the IRS considers a portion of that fee to be prepayment of medical expenses. If the entrance fee is refundable, the tax deduction only applies to the portion of the fee that is non-refundable. In addition, a portion of the monthly fee may also be deductible. Click here for an article that explains how the tax deduction might work.

The exact percentage of CCRC fees that are tax deductible varies considerably from CCRC to CCRC. The amount doesn't depend on the health care services that an individual resident actually received -- it is the aggregate for the entire community. The CCRC is responsible for informing residents the percentage of its fees that are for medical costs.

For more information on CCRCs, click here.

If you want to know if a CCRC is right for you or to find out if you are eligible to deduct medical expenses from your taxes, please call the Elder Law Center at 630-844-0065 or send an email. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.