![]() If a resident deducts any portion of the entry fee that is eventually refunded via a “return of capital contract,” then the refundable portion could later be taxable as income.Īs a general estimate, a deduction equivalent to around 30 or 40 percent of the entry fee is not uncommon for lifecare contracts. ![]() Any refundable portion of the entry fee should not be counted in the formula to determine the deductible amount. ![]() It’s also important to know that only non-refundable portions of the entry fee can be used for tax deduction purposes. Not applicable for refundable part of entry fee In some circumstances, such tax deductions may be available for a fee-for-service contract (Type C), if it can be clearly shown by the organization that some part of the fee(s) is being used to subsidize the cost of care delivered by the community. This is always the case with a lifecare contract (Type A) and, to a lesser degree, a modified fee-for-service contract (Type B). In order for any part of the entry fee and monthly fee to be tax-deductible, a portion of those fees must be accounted for by the community as a pre-paid healthcare expense. > Related: A Primer on CCRC Residency Contracts Again, the amount of deductibility is largely dependent on the type of residency contract held by the resident. Some people may not realize that residents of “entry fee retirement communities” may also be able to deduct a portion of that entry fee, and possibly a portion of their monthly fees, from their taxes as a prepaid medical expense. ![]() Based on your contract type, some portion of the entry fee may be refundable should you move out of the CCRC or as a payment to your heirs upon your death. Understanding CCRC entry fee and monthly fee tax deductionsĪs you probably know, many CCRCs require new residents to pay an entry fee, which can range from under $100,000 up to several hundred thousand, depending on the community. It’s been a while since I last wrote on this topic, and there have been a couple of changes since then relating to qualification for the deduction, so I thought this would be a good time to provide an update. One of the most common questions that I get during the Q&A portion of these sessions continues to be on the topic of tax deductions for entry fees and monthly fees at continuing care retirement communities (CCRCs or “life plan communities). Over the past months since COVID-19 turned our world upside down, I’ve done a few dozen webinars for prospective residents of various retirement communities across the country focused on planning for the future in an uncertain environment. ![]()
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