Tax reform boosts the benefits of long-term care medical deductions

Many advantageous provisions are buried in the pages of the tax reform bill recently signed into law by President Trump, but one of the least discussed could have a big impact for residents of senior living and long-term care facilities — especially residents with Type A or Type B contracts.

The final version of the tax reform bill includes a provision allowing taxpayers who itemize their deductions to write off qualifying medical expenses that exceed 7.5 percent of their adjusted gross income for the 2017 and 2018 tax years, as compared to 10 percent previously. The change will benefit all residents who itemize, but it will be especially beneficial for residents who paid or will pay entrance fees in 2017 and 2018 — potentially saving them thousands of dollars.

This change isn’t just an opportunity for residents. Now is the perfect time for long-term care facilities to evaluate their calculations and update their marketing strategies accordingly. Entrance fees, along with standard monthly fees, are deductible for your residents to the extent they represent payment for medical services. For Type A and Type B contracts, these deductions can be significant. But determining  the ratios can be difficult given the significant gray area regarding what can and cannot be considered “medical” for the purposes of these calculations.

Residents are very aware of the deductions, and the deductible medical ratio can be a deciding factor when potential residents select a community. It's important to make sure your calculation maximizes your residents’ deductions and that the support for your positions is appropriately documented — issues such as contract refundability, level-of-care transfer discounts, and how long your community has been offering contracts of different types can have large impacts on your ratio.

Make sure your community maximizes the full benefit of these changes in the new tax law. If you haven't already, perform your medical deduction calculations. Review your community's existing calculations, and consider developing calculations based on comparable information of similar communities for those who offer Type A and Type B contracts.

Sharing these calculations with your residents doesn’t just help them — it helps you. The ability to satisfy your residents’ demand to maximize their potential deductions keeps them happy and gives you a powerful marketing tool to attract new residents.

Not sure where to start? Give us a call; we’re here to help.