How Moving to Senior Living Minimizes Your Tax Bill
Even in retirement, there’s no escaping taxes. But there are things you can do to reduce your tax burden and help preserve your nest egg. By moving to a Life Plan Community (also known as a Continuing Care Retirement Community or CCRC) with a Life Care contract – like Cypress Village – you may qualify for a CCRC entrance fee deduction. It’s a great way to enjoy an engaging lifestyle now, while having a practical plan for the future and taking advantage of valuable tax breaks. Here’s how it all works.
The Tax Deductibility of Senior Living
The potential tax deductions for moving to a Life Care community include a one-time CCRC entrance fee tax deduction and ongoing deductions for your monthly fees. For any part of your entry fee and monthly fees to be tax-deductible, a portion of those fees must be allocated by the community as a pre-paid health care expense – which is what makes a Life Care contract special.
It’s also important to note that only non-refundable portions of the entry fee may be eligible for tax deduction purposes. If any portion of your entry fee is refundable, it would not be counted in the formula to determine the deductible amount. If any portion of the entry fee is eventually refunded through a “return of capital contract,” that refundable portion may later be considered taxable income.
Keep in mind that your initial CCRC entrance fee tax deduction and the ongoing monthly fee deductions are available on a “use it or lose it” basis. That means you’ll need to plan your taxable income each year to ensure you receive the maximum benefit from these significant senior living tax deductions. Additionally, if your children pay the entry fee (or a portion of it), they may be entitled to claim the deduction.
Selling Your Current House
When it’s time to sell your home, its value has likely increased significantly since you purchased it. If so, you may have to pay capital gains tax on the profit from the sale. The amount of tax you owe depends on several factors, including the following:
- Your income tax bracket
- Your marital status
- How long you’ve owned the property
- Whether it was your primary residence, a second home or an investment property
However, there are ways to reduce or avoid capital gains taxes, especially if the home was your primary residence. You can exempt a portion of the profit – up to $250,000 if you file as single, or up to $500,000 if married filing jointly. You may also avoid capital gains taxes if you use your home equity to purchase another residence, such as when moving into a senior living community.
Talk to a Tax Professional
Since tax laws are constantly evolving and vary state by state, it’s essential to consult with a qualified tax professional who can help you analyze your specific situation and make the most informed decisions.
The Tax Advantages of Senior Living Are Just the Beginning
Still have questions about the tax benefits of living in a CCRC? To see how moving to Cypress Village in the same year you sell your home can help maximize your tax deductions, use our Community Assist chat feature or contact us here to schedule your personal visit. You’ll also learn more about your financial options and the benefits of our Life Care plan.
