As we’ve written previously, residents of continuing care retirement communities (CCRCs or “life plan communities”) may be eligible to deduct a portion of their monthly fee — and in some cases a non‑refundable portion of the entry fee in the first year — on their federal income tax return.
That deduction falls under Section 213 of the Internal Revenue Code and is discussed in IRS Publication 502 under the topic “lifetime care.” For qualifying CCRC residents, the deductible portion can be substantial in some circumstances — sometimes amounting to a significant percentage of CCRC fees — which can materially affect out‑of‑pocket costs. Keep in mind this deduction is only available to taxpayers who itemize deductions. With modern standard deduction levels (for example, nearly $14,000 for single filers and roughly $28,000 for joint filers in recent years), fewer people itemize than before. Nonetheless, for eligible CCRC residents, itemizing can still be advantageous. As always, consult a qualified tax professional before making any decisions.
Is the tax deduction available to all CCRC residents?
The amount that can be deducted often varies by the type of residency contract. Generally, residents with a lifecare contract tend to qualify for a larger deduction than residents under other contract types. That is because lifecare contracts typically require higher up‑front payments or higher monthly fees that help build a reserve to cover potential future medical and supportive care expenses. The portion of the fee allocated to those future health care costs may be treated as a pre‑paid medical expense and, when eligible, deducted accordingly.
>> Related: Learn about CCRC contract types
By contrast, if monthly fees primarily cover hospitality services, dining, housekeeping, social programming, or general amenities, little or none of those charges should be claimed as medical expenses. An exception might exist if a specific amenity is prescribed or demonstrably required to treat a particular medical condition for an individual resident, but routine fitness or recreational features typically do not qualify as deductible medical expenses.
CCRC tax status
Some people assume this deduction applies only at nonprofit CCRCs because tax deductions are often associated with charitable giving. That assumption is incorrect. The CCRC deduction is not a charitable contribution — it is an expense treatment. The key question is whether part of a fee qualifies as a medical expense, either for care being provided now or as a prepayment for care to be received in the future. For the same reason, certain insurance premiums (for example, some long‑term care insurance) can also be deductible as medical expenses when they meet IRS criteria, even if care is not yet needed.
Anyone with sufficiently large medical expenses in a year may qualify for a medical expense deduction, regardless of whether they live in a CCRC. For CCRC residents, however, there may be additional allowable amounts to include when calculating whether the threshold for deducting medical expenses is met. Remember, the deduction is available only to those who itemize deductions on their tax return.
The information above is general in nature and should not be considered personal financial or tax advice. Consult a qualified tax or financial professional about your specific situation before making decisions.