Tax Tip: Deducting Retirement Home Costs

Editor’s Note: This article is part of our 2012 Tax Tips series. Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.

NEW YORK (MainStreet) – Many seniors choose to spend their "golden years" in a life-care or continuing-care retirement community, which provides options for independent living, assisted living and nursing care in a single facility or setting. Residents can move from one venue to another as their situation changes and additional levels of care are needed, and often residents are guaranteed health care or long-term care for life.

Residents usually pay a sizeable entry fee plus a monthly maintenance fee. Any portion of the lump-sum entry fee identified in the residential agreement as a condition for the facility’s promise to provide lifetime medical care can be deducted as a medical expense on Schedule A in full in the year paid, even though the medical care will be provided at some time in the future. In such a situation, the facility will usually indicate the amount that is deductible.

If the primary reason for moving into a retirement or nursing home is to obtain medical or long-term care, the entire cost of the home, including meals and lodging, is fully deductible. If the reason for entering the home is convenience and not medical necessity, only the cost of actual medical care and treatment can be deducted.

A one-time upfront medical payment to a nursing home for a lifetime of medical care can be deducted in full in the year it is paid, again despite the fact that much of the medical care will be provided in future years.

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