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The Tax Benefits of Moving to a Continuing Care Retirement Community

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The Tax Benefits of Moving to a Continuing Care Retirement Community

Each year, millions of Americans pull together various income statements and tax deduction forms as they prepare to maximize any monetary return they might be due from the IRS. 

In the same respect, millions of retirement-aged adults are unaware of certain major life purchases that may qualify for tax deductions, while simultaneously planning for the retirement lifestyle they’ve always envisioned. 

Those who discover continuing care retirement communities (or CCRCs) that offer a particular type of pricing plan known as “life care contracts” or “Type A contracts” to protect them against the rising cost of healthcare services, also reveal the lesser-known financial benefits of living in such community. 

 

Understanding a CCRC 

What is a CCRC? In short, it’s a retirement living campus that offers resort-style residences, amenities and other services for older adults. Residents of CCRCs also have access to healthcare services like assisted living, skilled care and rehabilitation if and when they ever need them, often available on the very same campus. 

So what makes the Type A Life Care contract one of the most financially advantageous optionsWith Life Care, when a move to a higher level of care such as assisted living or skilled nursing care is requiredthe resident’s monthly fees do not increase based solely on the need for this level of care.  The monthly fees remain dependable and consistent and allow residents to remove financial worry and truly gain peace of mind.     

Click here to learn more about the amenities and services offered by some CCRCs. 

 

CCRC Tax Deductions 

This is where the tax deductions of the Life Care contract at a CCRC come into play as an added benefit. Many don’t realize that, for residents who qualify to itemize medical deductions, a portion of the entrance fee paid in the first year may be eligible for a one-time tax deduction, and monthly fees may qualify for annual deductions. The percentages vary slightly each year, but, as an example, in recent years for residents of Acts Retirement-Life Communities (Acts)the deductions for both the entrance fee and monthly fee have been substantialtypically between 39 and 41 percent! 

A resident of a CCRC does not have to be in need of healthcare services upon moving into the community since a portion of the entrance fee and monthly fees include prepayment for future potential health care—thus a medical expense. So, in the year residents pay the entrance fee, they may end up with a significant tax deduction. We always encourage residents to discuss this potential benefit with their tax adviser. 

Learn more about tax benefits for older adults and the best states to retire. 

 

Other Life Care Financial Benefits 

While the opportunity for tax deductions are considerable, the financial advantages of a Life Care CCRC don’t stop there. 

The nest egg is protectedThe Type A Life Care contract protects residents’ assets because the one-time entrance fee and monthly fees include, in part, a prepayment for potential future health care in today’s dollars.  This equates to a much lower cost for long term care than the cost if waiting and moving directly to a higher level of care directly from home For example, an average monthly fee at Acts today for a single person living in a one-bedroom apartment is about $3,000, so, assuming that monthly fee might increase to about $4,000 by the time he or she might need to move to a higher level of care, then that resident would only pay $4,000 for assisted living or skilled care compared to the future cost of care that is predicted to be more in the range of $8,000 to $15,000 per month for private pay carper person The Life Care plan, thus, helps to protect a resident’s nest egg from potential catastrophic future health care cost.  

 

Household maintenance expenses are includedMany seniors have likely paid off the mortgage for their home. But the actual cost of owning and maintaining the home may be higher than realized when taking into account local and property taxes, repairs and utilities.  A CCRC allows the resident to pay a monthly fee that covers most expenses pertaining to the residence and generally increases only annually. Plus, the monthly fee often includes utilities, taxes and a host of dining, engagement and campus amenities that benefit the resident’s lifestyle, so it covers much more than just rent.   With this comprehensive monthly fee, expenses are predictable. 

 

Considering Retiring in the Near Future? 

In these uncertain times, Acts is here to help. There is hope on the horizon and, especially during this tax season when we typically think about our best financial future, it’s a great time to make decisions.   There are plenty of ways to proactively work towards the next exciting chapter in your life or to assist your parent or friend to make these important decisions Conducting research, developing  financial plan, exploring virtual tours and community floor plans, and talking to retirement experts all from the comfort and safety of your home are all easily and effectively accomplished by connecting with organizations like Acts who have a long track record of proven excellence in providing life care CCRC campuses. For more information about retirement or how to plan your next chapter, read these articles by Acts Retirement-Life Communities:  

What is the Average Cost of a Senior Independent Living Community?  

How to Prepare for a Recession if You Are Retired 

 

Karen Christiansen is President of Acts Retirement-Life Communities, and has worked for Acts for 25 years, including in her former position as Chief Financial Officer.  

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