Bob Bertolette discusses tax benefits of a CCRC

Bob Bertolette, President/CEO

The Tax Court’s 2004 decision is great news for those living in a Lifecare Continuing Care Retirement Community (CCRC) such as Riddle Village. The decision confirms that a resident can continue to treat a significant percentage of the one-time entry fee and recurring monthly fee as a prepaid medical expense regardless of the level of utilization for such services.

Bill Bischoff stated in his Wall Street Journal Social Network article, that in order to be eligible for such a medical tax deduction, the IRS requires that “a person must enter into a CCRC-like contractual lifetime-care arrangement in order to claim current medical expenses deductions for amounts paid to the community that don’t depend on the level of medical services actually provided to that person.”

In other words, such a deduction is only available to residents living in a true Lifecare retirement community like Riddle Village, regardless if there was any utilization of health care services during that particular year. This is not the case with a “fee-for-service” or “pay as you go” type communities.

In order to minimize any errors in making this complicated calculation, Riddle Village has been using the services of an independent accounting firm, who also completes our annual Medicare Cost Reports, to compute the percentage deduction that the IRS may allow. To put it as simply as possible, these percentage calculations are based on the CCRC’s aggregate medical expenditures in relation to overall expenses or overall revenue from the fees paid by the residents.

Each year the percentage varies as it is dependent on the actual utilization of health care services and related expenses. In 2016, the medical tax deduction for Riddle Village apartment residents was 29% of the monthly fee and 67% of the one-time entrance fee Plan A non-refundable portion, 89% of Plan B non-refundable portion and 100% of Plan C non-refundable portion, for those who moved in that particular year. However, it is important to keep in mind that 100% of the monthly fee is tax deductible for those permanently residing in Personal Care or Health Care Center.

Each year, we provide our residents with a written notice outlining the calculated percentages. Anyone moving into a Lifecare CCRC should consult with his or her personal tax advisor regarding the tax implications of the deduction on their personal tax return.

The bottom line is that there is a significant financial benefit to moving into a true Lifecare retirement community due to the fact that the IRS continues to recognize a percentage of both the one-time entrance fee and the monthly fee as a pre-paid medical expense deduction.

After meeting the medical and financial requirements for entering a Lifecare community, you can take comfort in having the health care protection allowing you to extend and/or protect your hard earned retirement assets by avoiding any catastrophic or unexpected health care costs.

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