Lifetime-care advance payments - may have tax benefits
Many older adults have moved into a continuing-care retirement community, or a similar place, where you sign a contract covering both residential and medical services, such as independent living, assisted living and skilled nursing (long-term care). Depending on the details of the contract, a significant part of what you pay may be deductible.
Publication 502 summarizes the rules on deducting as a medical expense part of a “life-care fee” or a “founder’s fee” that you pay monthly or as a lump sum under the agreement with a retirement home. How much you can deduct depends on the amount allocated to medical care, says Ms. Perlman of H&R Block.
The IRS says the agreement must require you to pay “a specific fee as a condition for the home’s promise to provide lifetime care that includes medical care.” Our community, for instance, gives residents a statement from an actuarial firm that includes details on the continuing-care retirement community and deductible amounts.
“The IRS has no set percentages [on how much can be deducted], just looking for a reasonable allocation,” says Mr. Luscombe. What’s reasonable? The IRS says the statement from the home “must be based either on the home’s prior experience or on information from a comparable home.”
This and many other issues can be very deep water, so you should consider getting guidance from an experienced tax pro.
From https://www.wsj.com/articles/medical-expenses-and-taxes-what-you-need-to-know-11620057600 (subscription)