Taxes have been a major topic in recent weeks as the president and a GOP-controlled Congress push proposals that would change the tax code and affect millions of Americans. Some taxpayers would see their bills rise, while others could pay less. If you’re trying to determine which group you fall into, it helps to understand how specific provisions would affect particular populations—especially older adults living in continuing care retirement communities (CCRCs), also known as life plan communities.
About 850,000 people live in roughly 2,000 CCRCs across the United States. Several of the tax changes under discussion could have negative consequences for those residents, particularly people who rely on current deductions tied to medical and long-term care expenses.
An end to health expense deductions?
One House proposal would eliminate the medical expense deduction, which today allows taxpayers who itemize to deduct qualifying medical and dental expenses that exceed 10 percent of adjusted gross income (AGI). AGI is computed by taking taxable income and subtracting allowable adjustments such as certain deductions or traditional IRA contributions.
Under current law, individuals may deduct their own medical expenses and the qualifying medical expenses of certain dependents, which for some taxpayers include a spouse or aging parents. Roughly 6 percent of filers claim this deduction, often those with significant care needs—seniors in nursing homes and people with chronic conditions, for example.
For many CCRC residents, the medical deduction provides another important tax benefit. A portion of entrance fees and monthly fees paid by some independent-living residents in CCRCs can be treated as a prepayment for future assisted living or skilled nursing care. Under current rules, residents with Type-A (lifecare) contracts, and in some cases Type-B (modified) contracts, who itemize can often deduct part of these fees as pre-paid medical expenses if the total medical expenses exceed 10 percent of AGI. Eliminating the medical expense deduction would remove this possibility and could erase a significant tax break for many residents.
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Supporters of the proposed changes argue that eliminating certain itemized deductions will be offset by a substantially higher standard deduction—proposed to rise from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for joint filers—benefiting middle-class taxpayers. However, for people who routinely claim the medical expense deduction, the higher standard deduction may not compensate for the loss. This is especially true for those living in CCRCs or requiring assisted living or long-term care services, which in some states can cost well over $100,000 per year. Losing the medical expense deduction could accelerate the depletion of personal savings and increase reliance on Medicaid, ultimately raising government costs.
Punished for planning ahead?
Many CCRC residents expressed frustration about the proposed changes, saying that by choosing a CCRC they proactively planned and saved for their future care rather than “spending down” to qualify for government programs. Under the potential changes, those who planned and pre-funded their long-term care may lose a valuable, recurring tax benefit.
These concerns have been documented in coverage that explains how elimination of the medical deduction could affect seniors and their families.
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Eliminating not-for-profits’ tax-exempt debt option?
Another provision in the House plan would eliminate the use of private activity bonds, which currently allow tax-exempt borrowing to finance certain private projects, including nonprofit senior living facilities and affordable senior housing. Critics of these bonds argue they divert public benefits to private interests, but private activity bonds have also supported the development and preservation of nonprofit senior living and other socially beneficial projects like infrastructure and disaster recovery.
Removing this tax-exempt debt option would reduce incentives for nonprofit developers and operators to build and maintain quality housing options for older Americans, potentially harming the availability and affordability of senior housing.
“The bigger issue no one is talking about”
A public finance professional I spoke with highlighted a related but broader concern: proposed reductions in corporate tax rates could raise borrowing costs for nonprofit senior living providers even if private activity bonds survive. Because tax-exempt bonds have lower yields than taxable bonds, corporations often buy them for their tax advantage. If corporate tax rates fall substantially, corporations might find taxable bonds just as attractive on an after-tax basis, reducing demand for tax-exempt bonds and pushing up yields on the debt nonprofit issuers can access.
In short, lower corporate tax rates could erase much of the advantage private activity bonds provide, forcing nonprofit senior living providers to pay higher interest rates. That would increase development and operating costs, strain credit ratings, and make it more expensive to build and preserve affordable senior housing and other public-interest projects.
Proposed tax changes…in a nutshell
Analyses from tax policy researchers indicate the proposed plans would produce unequal effects across income groups. For example, under one draft, by 2027 the top 0.1 percent of Americans might receive a large average tax cut, while middle-income households could see very modest benefits and lower-income households could face small average increases. These distributional differences are a central part of the debate about the bills under consideration in Congress.
If you’re concerned about how these tax changes could affect you, your family, or the senior living sector, contact your members of Congress to express your views. Legislators are weighing these provisions and public input can influence their decisions.
- Find your U.S. senators and their contact information through the Senate directory.
- Use the House directory and ZIP code lookup to find your U.S. representative and their contact information.