34.10 Tax Effects of Moving to a Continuing Care Facility

Senior citizens who move into “continuing care” or “life-care” facilities pay large upfront entrance fees upon admittance, as well as monthly fees thereafter in return for a residence, meals, and lifetime health care, including long-term skilled nursing care, should that become necessary. The payments raise several tax issues discussed in this and the following section (34.11).

- - - - - - - - - -
image Law Alert
Interest Not Imputed on Refundable Entrance Fees
You must pay a lump-sum entrance fee when you enter a continuing care community. Depending on the type of plan, a portion of this fee may be refundable, if you move from the community, or become payable to your heirs upon your death. Before 2006, the refundable portion of the entrance fee was considered to be a loan and subject to imputed interest rules. However, this tax treatment of the refundable entrance fee has been permanently repealed.
- - - - - - - - - -

Portion of monthly fees deductible as medical expense.

Part of the monthly fees to a life-care community are allocable to health care, which you may deduct as an itemized medical expense subject to the 7.5% floor (17.1). Continuing care facilities generally send a statement to the residents specifying the portion of their monthly service fees that went towards health care.

The IRS and Tax Court have approved ...

Get J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.