Deductible expenses for moving to a continuing care life community

[lmd59neh]

I moved to a senior community with a non refundable, no equity upfront buy in fee and pay a monthly fee for my apartment.  can I deduct any of  the buy in fee or monthly fees?

[MaryK4 · Accepted solution]

No, the no equity upfront buy in fee is just a contractual fee due at the start of the term with no specified purpose so it is not deductible.  The monthly fees for ordinary living expenses are not deductible, but if a part of the fees is specifically designated for nursing services, you may be able to deduct as Medical Expenses if you itemize.

[BioProfSF]

I think the answer is misleading.   MOST continuing care retirement communities have a substantial part (15%-50%) of their upfront buyin fees and their monthly service fees qualifying for a deduction as a prepaid medical expense.  Each such community can tell you the percentage for its own situation as the inputs for their calculations vary from place to place.   This is a simplistic answer to a complex issue as not only does the IRS code speak to it but so do private letrer rulings that maybe precedents and court cases as well.   I have yet to locate any person or accounting firm that are experts.  The main question for TurboTax is where to itemize any deduction for which you are entited.  As an insurance premium or as a medical facility fee?    T

[DaveF1006]

This IRS publication may give you the answers you need.  Some  continuing care retirement communities are very attractive and offer many amenities but be careful in trying to claim medical expenses for things like food or the rent component to stay in one of these facilities. IRS only limits  deductible medical costs for the medical care incurred while staying in the facility. Here is where it makes its distinctions.

• If you, your spouse, or your dependent is in a nursing home primarily for medical care, then the entire nursing home cost (including meals and lodging) is deductible as a medical expense.
• If that individual is in a home primarily for non-medical reasons, then only the cost of the actual medical care is deductible as a medical expense, not the cost of the meals and lodging.

So the crux of your argument depends on the type of facility you are referring to. Nursing home or retirement community, that is the question?

@BioProfSF 

[BioProfSF]

The answer from DaveF is also misleading.  A simple Google search for deductibility of continuing care retirement community fees will turn up many entries that contain statements similar to this from Ciccarelli Advisory Services: 

" many people who move into a community are missing out on a little-known tax break that could significantly lower your costs. The potential tax-saving benefits of moving into a CCRC are two-fold: (1) a one-time deduction of your entrance fee and (2) an ongoing deduction of your monthly fees.

When you file your taxes for the year, you are allowed to deduct the costs as prepaid medical expenses– even if you live independently at the CCRC and require little to no care. Since the CCRC fees can be quite steep, significant write-offs may be allowed when your out-of-pocket medical expenses surpass 7.5% of your adjusted gross income based on current tax law in 2022." 

In other words, you do not need to be undergoing medical care to take the deduction -- it is a prepaid medical expense.

[CBenson2]

Confirmed.  January 31, 2024, the IRS has determined that residents of some retirement communities that enter into a life care contract can under certain circumstances deduct a portion of their monthly fees and sustaining fees as prepaid medical expenses.  IRS guidance see rulings 67-185, 76-481, and 93-72 as well as the Finzer case and the Baker case.

[CBenson2]

There are limitations on deductibility of initial entrance fees for a life care facility contract based upon what portion of your lump-sum payment went toward supporting medical costs at the community.

[johnlittle41]

I the entry fee to the CCRC facility is paid in 2023, and move into the facility in early January, 2024,  will the one time deduction be allowed on 2023 taxes or for 2024 tax year.

[Vanessa A]

You would claim it in 2023.  Then if the amount is refunded, then you would have to add it back to income in 2024. 

"Rev. Rul. 75-302 holds that, under those circumstances, the portion of the lump-sum life-care fee payment that was properly allocable to the taxpayer's medical care was deductible as an expense for medical care in the year paid, subject to the limitations in section 213 of the Code, and that any refund of the entry fee that is received by the taxpayer in a later year must be included in gross income for such later year to the extent attributable to (and not in excess of) deductions allowed under section 213 for any prior taxable year." Tax Notes