The 2009 tax filing season for tax professionals was both challenging and rewording. An issue that appears to be seen with increasing familiarity is Medical Deductions for
\nSeniors. <\/p>\n
The considerations go beyond the normal Itemized Deductions, the alternative to the Standard Deduction, for medical which are traditionally the cost of out of pocket prescription drugs, medical insurance, including long-term care and medical bills such as doctors, dentists, clinics, etc.<\/p>\n
All of medical remains subject to the 7.5% exclusion from income. Example: Single
\ntaxpayer with $10,000 in medical expense has $100,000 in adjusted gross income. The
\nfirst $7,500 (7.5% of adjusted gross income) is non-deductible and only $2,500 is
\ndeductible on Schedule A \u2013 Itemized Deductions, provided the taxpayer has sufficient
\ndeductions to exceed the Standard Deduction.<\/p>\n
Many Seniors are entering into Continuing Care Retirement Communities, CCRCs.
\nThese communities provide four type of care:<\/p>\n
1. Independent living;
\n2. Assisted living;
\n3. Alzheimer\u2019s care; and
\n4. Skilled nursing care.<\/p>\n
Typically, residents of the CCRCs must be at least age sixty-two years when becoming a resident. However, the average age of entry to a CCRC is seventy-five and the average age of CCRC residents is eighty-four.<\/p>\n
In fee-for-service CCRC facilities there is an entry fee plus a monthly fee or a Class A
\nCCRC.<\/p>\n
In some cases the CCRC has a feature where a portion of the entrance fee is refundable, without interest, if the resident leaves the CCRC and to the estate if the residence dies while residing at the CCRC.<\/p>\n
Other entrance fees see the refund of a portion of the fee going back to the resident when they leave the facility.<\/p>\n
It is a challenge to the tax professional community that works with Seniors to determine how much of the entrance fee to a CCRC is deductible as a medical expense in the year paid.<\/p>\n
It is a two-step process.<\/p>\n
It must first be determined how much of the entrance fee is a cost and second, it must be determined what proportion of the cost is deductible.<\/p>\n
If any of the entrance fee is refundable, the IRS considers this an interest free loan and
\nnot a deductible medical expense.<\/p>\n
If the entrance fee is partially refundable when the resident leaves, the entire entrance fee is deductible and upon return is taxable to the resident or to the resident\u2019s estate.<\/p>\n
In the case of the CCRC assisted living a percentage method of calculation for medical
\ncost is used. After carefully analyzing the costs incurred a percentage of the costs for
\nmedical care gives a percentage of the cost of entrance and monthly fee costs that are
\neligible for medical deductions.<\/p>\n
In the case of Alzheimer and skilled nursing care, the entire amount is deductible as a
\nmedical expense.<\/p>\n
An example of the percentage method:<\/p>\n
Mr. and Mrs. Whitlock are new residents of an independent living residence at
\nWhispering Oaks CCRC. The entrance fee is $500,000 and 90% is refundable to the
\nWhitlock\u2019s should they leave or refundable to their estate should they die while residing
\nat Whispering Oaks.<\/p>\n
In addition to the entry fee, there is a monthly fee of $5,000 – $4,000 of which is for the
\nfirst resident, Mr. Whitlock, and $1,000 for the second resident, Mrs. Whitlock.<\/p>\n
They take all their tax information to their tax professional to have their taxes prepared.
\nThey believe they will have a huge medical deduction this year.<\/p>\n
The tax professional must look to the accounting records of Whispering Oaks CCRC to
\nsee what is deductible to the Whitlocks.<\/p>\n
In 2008, Whispering Oaks had total expenses of $10million of which $5Million was the
\ntotal medical expenses for all residents.<\/p>\n
The allocation is calculated as follows \u2013
\nMedical Expenses divided by Total Expenses equals applicable percentage.
\n$5Million divided by $10Million = 0.50%
\nThere were 200 residents living in independent living at Whispering Oaks in 2008 with
\n$5.5Million in collected fees..
\nFirst, their entrance fee – $500,000 X 10%, the non-refundable portion, is $50,000.
\nDeductible medical costs from the entrance fee ($50,000 X .50) is $25,000.<\/p>\n
Second, the total medical expense allocated is $5.5Million X 0.50 = $1.10Million.
\nCost per resident is calculated at $1.10Million divided by 200 residents = $5,500.
\nDeductible medical costs for 2008 are $5,500 X 2 (individuals) = $11,000<\/p>\n
Total medical expense ($25,000 + $11,000) is $36,000.
\nThere is an additional method to calculate the deductible medical cost, however it is quite complex and often does not result in a more favorable outcome.<\/p>\n
In Delbert and Margaret Baker v. Commissioner <\/em>No 448-02 USTC 2004, February While the issue of whether medical expense is deductible is overridden with the fact that In future years, without the entrance fee, and no other medical costs paid, it is highly Karl Schroeder, RFC, CSA The 2009 tax filing season for tax professionals was both challenging and rewording. An issue that appears to be seen with increasing familiarity is Medical Deductions for Seniors.<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,6],"tags":[],"class_list":["post-309","post","type-post","status-publish","format-standard","hentry","category-finance","category-health-2"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/309","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=309"}],"version-history":[{"count":3,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/309\/revisions"}],"predecessor-version":[{"id":312,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/309\/revisions\/312"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=309"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=309"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=309"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n9,2004 Tax Court found that taxpayers are free to choose the method that benefits them. With more and more Seniors moving to CCRCs, the tax problems will magnify for tax professionals.<\/p>\n
\nmost medical is not deductible due to the exclusion of 7.5% of adjusted gross income.
\nIn the case of the Whitlock\u2019s, their deductible medical paid to Whispering Oaks was
\n$36,000, however with an adjusted gross income of $250,0000 the 7.5% made $18,750
\nineligible for deduction, leaving only $17,250 available for deduction.<\/p>\n
\ndoubtful that the Whitlock\u2019s will be able to deduct any medical expense paid to
\nWhispering Oaks.<\/p>\n
\nInvestment Advisor Representative
\nSchroeder Financial Services, Inc.
\n480-895-0611<\/p>\n","protected":false},"excerpt":{"rendered":"