Understanding the Tax Benefits of a Life Plan Community

March 22, 2021

Understanding the Tax Benefits of a Life Plan Community

Spring is drawing near, which means another event – tax day – is arriving soon as well. If you’re an older adult who’s been thinking about moving to a Life Plan Community, you may be wondering how that decision would play into your financial situation (and tax situation).

“Our residents qualify for hefty tax breaks as part of the Lifecare agreement they enter into when they move to Royal Oaks,” says Mary Ellen Thieroff, Marketing Director of Royal Oaks, an established Life Plan Community in Sun City, AZ. “This is especially true the first tax year they move into the community, as the tax benefits can extend to their entrance fee. This type of tax benefit is only available at a Life Plan Community, not at a monthly rental or pay-as-you-go community situation.”

Royal Oaks offers four Lifecare contracts: Three for Type A and one for Type B. For Type A, residents can choose from a nonrefundable option, a 90% refundable option and a 50% refundable option. The “refundable” refers to the one-time entry fee only. All Type A Lifecare contracts entitle residents to live in their selected home with no monthly fee increase when a higher level of living is required, even if they require assisted living, memory support or complete supportive living.

Type B offers a 90% refundable one-time entry fee, which also allows residents to live in their selected home and enjoy the benefits of the community. Additional health care services are available at a discounted rate.

The IRS considers the nonrefundable entrance fee as a “prepayment” for health care services, which are tax deductible. In addition to entrance fees, a portion of a resident’s monthly service fee (MSF) is also tax deductible. Why? Well, because payment of both your MSF and entrance fee entitle you to lifetime health care as a resident, a portion of your expenses actually are prepaid medical expenses.

According to the tax laws for 2020, individuals who itemize their taxes are eligible to deduct medical expenses exceeding 10 percent of their adjusted gross income (AGI). As you can see, that can definitely benefit individuals living in a Life Plan Community.

Every year, Royal Oaks provides a written notice that details the percentage of expenses that can be considered tax deductible. This percentage averages about 40-45% for our residents.

Why is this important? Well, for the same reason that other tax deductions are beneficial: because it helps reduce your amount of taxable income. Depending on your situation, this reduction can be small or significant.

Obviously, every individual’s situation is different. Royal Oaks doesn’t provide official tax or financial assistance, and we recommend every resident discuss their plans with a financial advisor to best take advantage of any tax benefits.

For more information about the tax benefits of a Life Plan Community, please visit our tax benefits page or request more information.

A vibrant oasis in the heart of Arizona.

If you love the idea of living in a community that sees the world a little differently – welcome home to Royal Oaks. Come discover the extraordinary when you reach beyond the familiar. You’ll have the time of your life in our Life Plan Community, exploring the almost endless possibilities.

Conveniently located near Phoenix in Sun City, Arizona, our upscale senior living community is an oasis of 50+ lush acres featuring a myriad of plants, trees and rose gardens. We are a nonprofit community that offers a full continuum of senior living services and care to older adults, including independent living, assisted living, memory support and complete supportive living. Continual improvements to the campus have resulted in state-of-the-art communal and private areas. Our main building bustles like Grand Central Station, complete with all the amenities of a small city.

With state-of-the-art technology, beautiful residences and engaging programs and amenities, Royal Oaks was designed with a focus on the future and all its potential. We invite you to visit our vibrant retirement community near Phoenix and get a taste for the good life.

Call 623-377-7663 today to schedule a personal tour.

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