Tax Benefits of Continuing Care Retirement Communities - Rodgers & Associates
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Tax Benefits of Continuing Care Retirement Communities

Tax-efficient retirement planning should not overlook the benefits of Continuing Care Retirement Commu­nities (CCRC). CCRCs allow retirement age seniors to provide for their current living needs and plan for their future when medical assis­tance may be needed. Seniors entering a CCRC typically sign a Life-Care agreement, which provides for housing and health services while they are healthy and active. This agreement provides a way for seniors to plan for their retirement, housing, and health services for the remainder of their life with signif­icant tax benefits.

A typical CCRC may provide different types of living units, each of which provides a different level of medical or long-term care. Usually an entrance fee is required in the form of an immediate lump-sum payment and then monthly fees are paid there­after. The lump-sum payment and monthly fees entitle the resident to certain lifetime medical and long-term care services, in addition to housing in the CCRC. A taxpayer generally may deduct a portion of these fees as medical expenses. The monthly fees generally are higher than rents paid for a compa­rable house or apartment. However, as much as 30% or more of the fees may be tax deductible as a medical expense.

Medical expenses are only deductible for taxpayers who itemize deduc­tions. In addition, the deductible portion is limited to the amount that exceeds 7.5% of your Adjusted Gross Income (AGI) in 2012. Starting in tax year 2013, the threshold will increase to 10% of AGI, thanks to the affordable care act. If you are age 65 (before year end) or older, the 7.5% threshold applies through 2016. Seniors age 65 or older who are consid­ering a CCRC should do so before 2016 to maximize the deductible portion of the entrance fee.

The first year deduction could be signif­icant. Careful tax planning is needed to take full advantage of the deduction. Roth conver­sions may be advisable for taxpayers in low income situa­tions. Upper income taxpayers will want to employ strategies to reduce AGI in order to maximize the medical deduction.