The Silver Lining is in the Tax Break in Virginia

CcrcA little-known tax rule can help offset the cost of some retirement communities.

If you, your parent, or an elderly loved one is reaching the point where living alone is no longer an option – for medical reasons or otherwise –  it may be time to consider some type of assisted living, whether nursing home or retirement community. Increasingly, many families are looking at the “Continuing Care Retirement Community" (CCRC) option. Even though the CCRC may be pricier, a little-known tax strategy recently explained in Smart Money could make it more financially attractive.

What is a CCRC? As SmartMoney decribes it this way: unlike "a traditional nursing home, where you simply pay a monthly fee, residents enter into a long-term contract with a CCRC. In exchange for a one-time entry fee and ongoing monthly charges, the CCRC provides housing and a range of on-site services. When a resident's health and personal care needs become more acute, the level of service can be increased to include assisted living, long-term care and skilled nursing care. The big advantage is that the resident doesn't have to move as his or her needs change".

Interestingly, there is another advantage: a potential tax savings. Because part of the upfront and ongoing fees is to provide medical services – whether the resident uses them or not – a medical tax deduction may be available. This strategy was upheld in the 2004 Tax Court case, Delbert L. Baker v. Commissioner (122 TC 143, 2004).

Of course, medical expenses must exceed the applicable percentage of adjusted gross income in order to claim the deduction.  There is a temporary exemption for individuals age 65 and older until Dec. 31, 2016. If you are 65 years or older, you may continue to deduct total medical expenses that exceed 7.5% of your adjusted gross income through 2016. If you are married and only one of you is age 65 or older, you may still deduct total medical expenses that exceed 7.5% of your adjusted gross income.  This exemption is temporary, however. Beginning Jan. 1, 2017, the 10% threshold will apply to all taxpayers, including those over 65.

However, if you are considering a CCRC, it’s quite possible that your applicable expenses will exceed this threshold, since their fees, including the upfront buy-in, are usually quite high. Remember, too, that the percentage of costs that qualify as medical is determined by the aggregated spending of the facility itself, rather than the individual and their level of received care. The CCRC management should be able to give you estimates of the percentages, though you may have to ask for them. One assisted living facility in our area now refuses to provide this tax advice but there is an easy remedy, just get a doctor to provide a statement about your medical need.  That letter will serve as justification for the deduction. 

Remember, kids,  if you will pay some or all of your parent’s CCRC fees, you can claim the applicable percentage of the charges as a medical expense on your return – if you provide more than half of your parent’s support. It's important to know however, that these tax breaks are available only if the parent enters into a CCRC-like contractual lifetime care arrangement otherwise the IRS will not allow the deduction.

You can learn more about this topic as well as other strategies on our website under the tab entitled: elder law planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

ReferenceSmartMoney (June 15, 2011) “A Tax Break for Retirement Community Costs

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.