Some retirement communities charge upfront fees as well as substantial monthly charges. If medical services (access to nurses on call, for example) are included, some of those outlays qualify as deductible medical expenses, according to a recent Tax Court decision (Delbert L. Baker, 122 TC 143).
Here, a retired couple determined the retirement community’s expenses for medical care, as compared with its total expenses. They took this percentage of their monthly charges as a medical deduction. Ultimately, they were able to deduct 32 percent of their outlays.
Suppose, for example, your parents live in a retirement community with 1,000 residents. The community’s total expenses are $10 million per year while medical expenses are $1.6 million. If so, the deductible percentage would be 16 percent Each of the 1,000 residents would be entitled to a 16 percent deduction, or 32 percent in the case of a married couple.
In this case, moreover, the taxpayers lived in an independent living unit, which provided the lowest level of care in the community. There is no indication they needed nursing care or any unusual medical services, yet they were allowed to deduct 32 percent of the monthly fees they had paid to the community.
