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March 27, 2013

Tax Breaks for Older Adults: Medical Expense Deductions

As we age, our bodies require more care. This means eating healthy, trying new exercise regimes, and visiting our doctors and specialists more frequently. “Oftentimes, an older adult is seeing four, five, or six physicians,” Dave Zientarski, Kendal at Home director of care coordination, says. 

With all that extra work we put into maintaining our bodies, it’s no wonder medical expenses are often one of the largest expenses for older adults. Fortunately, under Code §213(a), a taxpayer is allowed a deduction for expenses paid during the year not compensated by insurance or otherwise for medical care. These expenses must exceed 7.5 percent of adjusted gross income, which is the Statutory Threshold for Deduction. The statute, in relevant part, defines “medical care” as amounts paid for: 

  • The diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body
  • Transportation primarily for and essential to “medical care”
  • Qualified long-term care services
  • Insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering “medical care” or for any qualified long-term care insurance contract 

Prepaid medical costs can also be deducted. The Internal Revenue Service’s (IRS) long-standing position is the portion of the lump sum entry fee and the portion of the monthly fee attributable to medical care paid by retirement community residents is deductible under Code §213(a). 

“At Kendal at Oberlin and Kendal at Home, there’s a significant potential tax deduction one can get because of the monthly fee related to medical expenses,” AARP Tax Aide Joe Palmieri says. “The same thing is true for the entrance fee for both. A portion of the entrance fee is tax deductible as a medical expense.” 

For Kendal at Home members, 60 percent of the monthly fee and 100 percent of the entry fee qualifies for medical deduction. Unlike Kendal at Home, Kendal at Oberlin does not use the percent method due to the fact that pricing is tied to more than the cost of just healthcare. The Kendal at Oberlin campus model uses a Per Capita Method, as the entry fee is tied to the size of the unit. This means both Kendal at Home members and Kendal at Oberlin residents and those who pay similar costs are entitled to a deduction under §213 of the IRS Code for a portion of membership, entrance, and monthly maintenance Fees. 

Want to learn more about the potential benefits for taxpayers 65+? Download our FREE guide “Tax Relief for Older Adults: A Basic Guide to Benefits” before you file this year!


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