The Tax Benefits of Moving into Independent Living
When researching your senior living options, there’s a lot to consider that goes beyond monthly expenses. However, there’s one option called a Life Plan Community with a Life Care (also known as a Type A) contract that provides you with both a smart and practical plan for the future and tax benefits. How? Life Plan Communities with Life Care, like Galleria Woods, offer access to higher levels of care — assisted living, skilled nursing and rehabilitation — at well below market rates. A Life Care contact, provides a tax deduction as a prepaid medical expense. Here’s a broad overview of how it all works.
Is Senior Living Tax Deductible?
The potential tax deductions for moving to a Life Care community include a one-time deduction of your entrance fee and an ongoing deduction of your monthly fees. When you file your taxes for the year, you are allowed to deduct the costs as prepaid medical expenses.
For any part of your entry fee and monthly fee to be tax deductible, a portion of those fees must be accounted for by the community as a pre-paid healthcare expense. (wWhich is always the case with a Life Care contract.) It’s also important to know that only non-refundable portions of the entry fee can be used for tax deduction purposes. Any refundable portion of the entry fee would not be counted in the formula to determine the deductible amount. If you deduct any portion of the entry fee that is eventually refunded via a “return of capital contract,” then the refundable portion could later be taxable as income.
It’s important to keep in mind that deductions for your initial entrance fee and the ongoing monthly fees are available on a “use it or lose it” basis. In other words, you will need to plan out your taxable income every year to ensure that you receive the maximum benefit from these substantial senior living tax deductions. Also, if your children pay the entry fee, or some portion of it, they could be entitled to take a tax deduction.
Selling Your Current House
When it comes time to sell your home, it’s likely its value has increased significantly since you bought it. If so, you’ll have to pay capital gains tax on the profit you make from selling it. The tax rate depends on several factors like:
- Your income tax bracket
- Your marital status
- How long you’ve owned it
- Whether it was your primary residence, a secondary residence or an investment property
However, there are ways to avoid or reduce your capital gains taxes, especially if it’s your primary residence. You can exempt a certain amount of the profit — up to $250,000 if your tax-filing status is single, and up to $500,000 if married and filing jointly. You can also avoid capital gains if you use your equity to buy another residence, including moving to a senior living community.
Talk to a Tax Professional
As tax laws are always changing, it’s important check with a qualified tax professional to help you analyze your unique tax situation.
Explore the Tax Advantage of Senior Living
Making a move to Galleria Woods with our Type A Life Care contract in the same year you sell your house can help you maximize your tax deductions. To learn more and to see our beautiful community in person, use our Community Assistant chat feature or contact us here.
