CCRC Tax Deduction?

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ralph124cf
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CCRC Tax Deduction?

Post by ralph124cf » Thu Apr 27, 2017 2:26 pm

We know that LTC in a skilled nursing facility is deductible as an itemized deduction subject to the 10% or 7% of AGI limitation.

The "buy in" fee for many Continuing Care Retirement Communities can be quite high ($200,000 and up per person), and much (most?) of it seems to be advance payment for the medical services. Would this, or a portion of it, be considered a medical expense for the purposes of the IRS?

I would have to pull money out of a tax deferred retirement account for this, so it would avoid a big spike in tax rates if I could take a deduction in the same year.

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plannerman
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Re: CCRC Tax Deduction?

Post by plannerman » Thu Apr 27, 2017 2:40 pm

In our case, about $100,000 of the entry fee and about $1,000/mo of the ongoing fee is a qualified medical expense. Whether it is deductible depends on your AGI.

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FactualFran
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Re: CCRC Tax Deduction?

Post by FactualFran » Thu Apr 27, 2017 2:45 pm

ralph124cf wrote:We know that LTC in a skilled nursing facility is deductible as an itemized deduction subject to the 10% or 7% of AGI limitation.
Has the 7.5% threshold for deducting medical expenses been extended? According to https://www.irs.gov/individuals/changes ... l-expenses that exemption to the 10% threshold expired after tax year 2016.

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HueyLD
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Re: CCRC Tax Deduction?

Post by HueyLD » Thu Apr 27, 2017 2:47 pm

I won't speculate on possible future tax law changes.

However, I have done tax returns for those in a CCRC facility. The facility provided the residents with the amount of medical expenses calculated from each resident's entrance fee and monthly service fee. In addition, fees paid by residents for extended health care services when they no longer reside independently may be deducted as qualified medical expenses.

Alan S.
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Re: CCRC Tax Deduction?

Post by Alan S. » Thu Apr 27, 2017 3:02 pm

plannerman wrote:In our case, about $100,000 of the entry fee and about $1,000/mo of the ongoing fee is a qualified medical expense. Whether it is deductible depends on your AGI.

plannerman
The year the entry fee was paid should generate a medical deduction even with the 10% of AGI floor. Did the facility give you a written breakdown of the deductible amount for documentation in the event of an IRS inquiry?

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plannerman
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Re: CCRC Tax Deduction?

Post by plannerman » Thu Apr 27, 2017 3:36 pm

Alan S. wrote:
plannerman wrote:In our case, about $100,000 of the entry fee and about $1,000/mo of the ongoing fee is a qualified medical expense. Whether it is deductible depends on your AGI.

plannerman
The year the entry fee was paid should generate a medical deduction even with the 10% of AGI floor. Did the facility give you a written breakdown of the deductible amount for documentation in the event of an IRS inquiry?
Yes

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mickeyd
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Re: CCRC Tax Deduction?

Post by mickeyd » Thu Apr 27, 2017 4:18 pm

I have a copy of a memo from a CCRC that we are considering regarding this topic.

"The portion of these fees allocable to medical care by independent living residents has been determined in accordance with the percentage method, under which the ratio of total expenses allocable to resident medical care to total expenses allocable to residents is applied to the entrance fee and monthly service fees paid during the year. For 2015 that ratio is 30.6%."

I take from this that 30.6% of your fees could be considered as medical expenses for that year for IRS purposes. The memo advises to contact your tax advisor as this is for info only.
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RudyS
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Re: CCRC Tax Deduction?

Post by RudyS » Thu Apr 27, 2017 9:28 pm

This idea alone is worth my subscription to BH! Just kidding - but I never knew of this. Am considering a CCRC in a few years and this is great to know.

Dan999
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Re: CCRC Tax Deduction?

Post by Dan999 » Fri Apr 28, 2017 2:38 pm

But if the new tax law removes medical deductions, this may have an impact on my thoughts. I will have to wait until the new law comes out, to see what the net effect has on my proposed total taxes. I have lots of time to wait and see. Nobody knows what the final new law will be at this point.
But, I have question about the entry fee and income taxes for that year.
If I have a $100,000 medical deduction, this would put me in a very low tax bracket. Would it be wise to withdraw some of my IRA to avoid losing the tax deduction. Just leveling off the tax rate for a year. I know I would lose the tax free continued earnings, but does this make sense.

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RudyS
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Re: CCRC Tax Deduction?

Post by RudyS » Fri Apr 28, 2017 7:57 pm

Or you could do some tax gain harvesting in taxable, if that's an option.

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Re: CCRC Tax Deduction?

Post by afan » Sat Apr 29, 2017 7:05 am

If you took money out of an IRA to take advantage of the low tax rate you could do a Roth conversion and keep the tax free growth.
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Dan999
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Re: CCRC Tax Deduction?

Post by Dan999 » Sat Apr 29, 2017 8:23 am

Taking money out of the IRA and doing a Roth conversion might work for me. I will keep this note in my worksheet and when the time comes I will see how it works.
Good tips. Thanks
I have no taxable gains. All tax deferred.
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patriciamgr2
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Re: CCRC Tax Deduction?

Post by patriciamgr2 » Sat Apr 29, 2017 6:57 pm

The deduction is available assuming the medical expense deduction is still available to individuals. That depends on tax law in effect at the time the expense is incurred, of course. We don't speculate on proposed legislation on this Forum.

Good Luck.

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celia
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Re: CCRC Tax Deduction?

Post by celia » Sat Apr 29, 2017 8:20 pm

Dan999 wrote:If I have a $100,000 medical deduction, this would put me in a very low tax bracket. Would it be wise to withdraw some of my IRA to avoid losing the tax deduction. Just leveling off the tax rate for a year. I know I would lose the tax free continued earnings, but does this make sense.
Since you would have the same tax liability whether you take a distribution or convert, the Roth conversion makes more sense if you don't need the money for living expenses. This assumes you are over 59.5 (to avoid the early withdrawal penalty) and the conversion is done after any RMDs are taken for the year.

Carl53
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Re: CCRC Tax Deduction?

Post by Carl53 » Sun Apr 30, 2017 2:26 am

celia wrote:
Dan999 wrote:If I have a $100,000 medical deduction, this would put me in a very low tax bracket. Would it be wise to withdraw some of my IRA to avoid losing the tax deduction. Just leveling off the tax rate for a year. I know I would lose the tax free continued earnings, but does this make sense.
Since you would have the same tax liability whether you take a distribution or convert, the Roth conversion makes more sense if you don't need the money for living expenses. This assumes you are over 59.5 (to avoid the early withdrawal penalty) and the conversion is done after any RMDs are taken for the year.
There is no early withdrawal penalty for conversions at any age. Celia is referring to the pre 59.5 tax penalty for withdrawals.

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