Entrance FeeTax Deductions Explained Courtesy of My LifeSite
New residents in entry-fee retirement communities may be eligible to deduct a portion of the entry fee, and possibly monthly fees, depending on the type of contract offered by the community.
Here are a few key details to understand:
- Tax deductions are available only to residents of communities that contractually offer a "continuum of care." Therefore, retirement communities that do not contractually promise healthcare services do not qualify.
- Some portion of the entry fee must be accounted for by the community as a pre-paid healthcare expense. This is always the case with Type A LifeCare contracts. Under current circumstances residents with a Type C fee-for-service contract at Broadmead do not qualify for medical deductions while living in independent living.
- Only non-refundable portions of the entry fee can be used for tax-deduction purposes. Any refundable portion of the entry fee will not be counted in the formula to determine the deductible amount.
- The Chief Financial Officer will recommend an appropriate formula or amount to determine the allowable deduction amount, often providing a written explanation each year for residents.
- Under current tax law, if you itemize your tax deductions, you can deduct medical expenses exceeding 7.5 percent of your adjusted gross income (AGI). The actual deductible amount will depend on your taxable income and any other qualifying medical expenses.
- If adult children pay the entry fee, or some portion ofit, they may be entitled to take a tax deduction. However, other factors must also be considered, including the total amount of financial support they provide for their parents.
Note: For specific details see IRS Pub. 502-Medical and Dental Expenses, “Lifetime Care-Advance Payments”
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