Senior Living and Taxes: Don’t Miss These Perks
If you’re considering moving into a senior living community, you’re probably thinking about the financial implications of doing so and wondering if you’re eligible for a continuing care retirement community tax deduction. Fortunately for you, there are indeed tax deductions available for seniors who choose to live at a senior living community, and you’ll be happy to learn how senior living tax deductions can put more money back in your pocket than you’d get if you were still living at home.
Tax Deductions for Medical Expenses
As a senior, medical expenses can be some of the largest expenses you’ll face. If your medical expenses exceed 10% of your adjusted gross income (AGI), you can deduct those expenses that are over 10% from your taxable income. Work with your tax adviser to determine if that tax break is greater than the standard deduction for seniors. To claim medical expenses, you will need to itemize them, and they must be unreimbursed.
- Premiums and copays on medical insurance and Medicare (not paid for with pretax dollars).
- Medical services paid for without the help of insurance or Medicare, including preventive care, treatments, surgery, dental and vision care, hospitalization, psychiatrists.
- Prescription drug expenses.
- Premiums for long-term care insurance.
- The entrance fee at a senior living community.
Most Life Plan Communities (also known as continuing care retirement communities) that offer a LifeCare® contract require a one-time entrance fee and monthly service fees to live there. Your entrance fee may qualify as a retirement home tax deduction because it helps pay for medical and long-term care services like assisted living, memory care and skilled nursing.
- Fees for living at assisted living and memory care facilities.
If a resident is considered chronically ill by a licensed health care provider, receives long-term care services, needs constant supervision, and has a prescribed plan of care, their fees for living at such a facility are tax deductible.
- Downsizing and donating items.
If itemized, you can deduct cash contributions to charities, property donations, and the donation of tangible items like cars up to a certain amount depending on your AGI.
- Selling your house.
If you’ve lived in your current house for two of the past five years, the profit you make on the sale up to a certain amount is tax exempt.
- Retirement plan contributions.
- Business expenses.
If you’re consulting or still have a hand in your business, any expenses incurred from that are tax exempt.
Tax Deductions for Redding Seniors
Redding, Connecticut, offers two tax benefits to seniors: the Local Senior Benefit and the State Homeowners Tax Credit.
The Local Senior Benefit is a tax benefit for seniors 65 and older who have lived in Redding for three years, have paid real estate taxes and occupy their home at least 183 days per year. The tax benefit is 20% of the average residential assessment multiplied by the mill rate. Each senior who applies for this tax break receives the same benefit amount depending on the market that year, regardless of their taxable income.
The State Homeowners Tax Credit is income based, and the qualifications are updated annually, so check with your tax adviser to find out if you qualify.
The good news is, you can benefit from both of these tax breaks, as they can be combined.
The Standard Deduction
You may opt to take the standard deduction if your medical combined tax deductions and independent living tax credit for seniors don’t equal a tax break greater than the standard deduction, which is higher for seniors. If your spouse is 65 or older and you’re filing a joint return, you get the higher standard deduction. Consult with your tax adviser to itemize your medical expenses from the past year, and consider the tax break you can get from moving into a senior living community before taking the standard deduction. You may find the retirement home tax deduction puts more money back in your pocket than if you were living at home and accepting the standard deduction.
You should look into what percentage of the entrance fee to a senior living community like Meadow Ridge goes toward medical expenses, as that will affect your eligibility for tax deductions.
Of course, we always recommend you consult the tax experts when making a decision as big as this one. Plus, your financial situation is unique to you, so talk to your accountant or tax adviser to learn how you can benefit from a continuing care retirement community tax deduction.