Entrance fee to nursing home deduction limit in 2023?

[Greta]

Entrance fee is $400K. How much of that is deductible in 2023? In 2024?

[abctax55]

How much of that is for medical care?

[PATAX]

Wow that is a lot of money. I don't recall that happening around here so that may be a Virginia thing. Up here people just pay each month, which can be anywhere from a few thousand to maybe 15,000 or so a month. But $400,000. Does that cover everything for as long as the person's in the nursing home?

[BobKamman]

I see those occasionally - it's usually for an "assisted living" arrangement where the resident is somewhat independent, but nursing care is available if needed.  The resident pays monthly "rent" also.  The facility gives the resident a lengthy memo saying what percentage (to four decimal points) of its  expenses are for medically-related costs, and then cites two methods of using that number based on some Tax Court or IRS rulings.  Ask the facility about what to expect as documentation, and when to expect it.  ($400K is probably for a couple?)  

[Greta]

And the client got a discount! Usually the entrance fee is 1/2 mil per person. Kendal. It's a huge complex and growing. So many (wealthy) seniors live in this town. Nearly all university professors end up at Kendal. Good company, communal dining, events. The fee assures that folks can stay there in stages, as their needs increase. On top of entry fee, the monthly charges are about 4K/mo. The fee is deductible up to a limit, which some years ago was 100K. I couldn't find the current limit on the IRS site.

[IRonMaN]

$400K????????  Is that for the nursing home penthouse? 😱

[sjrcpa]

The monthly rent is reduced if you pay a lump sum upfront.

Sometimes some of the lump is refundable if you die before a certain number of years.

[PATAX]

What happens if they pass away shortly after paying that $400,000 and entering that nursing home? Does their family get back some of that $400,000?

[sjrcpa]

Depends on the option(s) they chose. There's usually 3.

[BobKamman]

Here's what one of their facilities said about the tax benefits, a couple years ago:

https://admiral.kendal.org/2018/11/09/tax-benefits-of-life-plan-communities-you-may-not-know-about/

[PATAX]

I think we are in the wrong line of work.

[Greta]

Yes, the fee is refunded if death occurs too soon. IRS does not ask what portion of entrance fee is for medical expense. It is assumed that eventually medical expense will be needed. The letter their office issues as to what (minuscule) part of the monthly charges are for medical reasons are not always accurate in my mind: Another of my clients has been demented for years, she could not survive a minute on her own. According to IRS instructions the entire monthly charge should be deductible, whereas the Kendal letter takes a most conservative approach, these letters appear identical, form letters.

[TaxGuyBill]

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@Greta wrote:

IRS does not ask what portion of entrance fee is for medical expense.

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You might want to review that section in Publication 502.

"The part of the payment you include is the amount properly allocable to medical care ... You can use a statement from the retirement home to prove the amount properly allocable to medical care."

https://www.irs.gov/publications/p502#en_US_2022_publink1000178969

[Greta]

Nursing homes pay their administrators very well. I have a few clients who make enormous incomes in that line of work. Another line of work brought a $750K W-2 to a young woman with just a high school degree as a mortgage broker during the last few heady years. Both lines of work require enormous hours. I, after all, mostly work nonstop for just 3 months. I used to be a college professor, earned a lot less, and withstood backstabbing "colleagues". In short, no complaints now!

[abctax55]

It is assumed that eventually medical expense will be needed. 

Not quite sure that means you get a 'deduction' now, for future/eventual medical expenses.

[Greta]

That was my thinking, that eventually medical needs will kick in. With an entry fee of 1/2 mil., it seemed that the limit suggested by IRS was reasonable. I will ask the nursing home administrator, but I suspect she will tell me "to check with your tax accountant." I am convinced I saw that limit published some years ago, but can't find it now! Should the deduction be taken in the year it was paid, similar to health insurance premiums?

[BobKamman]

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@abctax55 wrote:

It is assumed that eventually medical expense will be needed. 

Not quite sure that means you get a 'deduction' now, for future/eventual medical expenses.

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So tell us how you feel about health insurance premiums and long-term care insurance premiums.  

[abctax55]

Apples/oranges 

[PATAX]

I wonder what percentage, if any, of that $400,000 has to be set aside in a "Perpetual Care" like account? In Pennsylvania, I believe a percentage of revenue of cemeteries has to be put aside in a Perpetual Care Account, I.E. it cannot be spent for current year operations.

[Greta]

I now feel like an idiot for asking the original question. I contacted the nursing home and they emailed me the deductible numbers! For a lifecare contract, the deduction attributable to medical care is $76,500 in 2023. For a couple, it's $122,000. Plus $711 per month's charge. So my client is definitely itemizing.

[abctax55]

@Greta  - I'm glad I haven't done anything to make myself feel like an 'idiot'.  Well not in the last ten minutes anyway. 😉

[PATAX]

@Greta I am glad you asked original question, it was a good discussion. A neighbor/client called me a couple of days ago, and she brought up that subject. She said there is an area nursing home/assisted living facility in the area that does charge an entrance fee: $300,000.00 she said. So I was wrong, this is occuring apparently throughout the country. Thanks Greta for bringing up subject.

[IRonMaN]

If I have to come up with $300,000 up front to be sent someplace to die, my instructions to my family will be to just put me on an ice floe on Lake Superior and wave goodbye.  It's a cheaper and more scenic way to go.

[abctax55]

MY instructions are for cement overshoes, take me out into the middle of Lake Tahoe, and I'll jump overboard.

[IRonMaN]

You can still jump while wearing cement overshoes? 😜

[abctax55]

If not, my 'friends' will be happy to push me 🤣

[itonewbie]

Now, Jeff and Anna, that's all too depressing.  You wouldn't expect me to give you thumbs up for those ideas, would you?

[abctax55]

Jensen... well, it's really only if I'm terminal, or have dementia.  Otherwise, I'll spend all my money on myself before 'departure.

We had a dear couple we became close to; they 'bought' into this type of arrangement as the complex was being built so they actually had input on the floor plan of their 'apartment'.  It was on an estuary in the San Franciso/Bay Area.  Absolutely beautiful; sadly he passed before they could move in.  The facility also had the option(s) to stay as one progressed thru the levels of care needs.  

[itonewbie]

Anna, deaths and taxes... two certainties in life.  And we have to deal with both, probably more so than others, even taxes in deaths, for crying out loud.

But truly, I hope we all have a happy and peaceful death before we meet our maker.  And I just can't bring myself to upvote your post.  I'm sorry. 😥

[IRonMaN]

I know my death will be happy ———- the Intuit moderators will be happy to finally get rid of me🤪

[abctax55]

That's fine, Jensen.  Altho it does likely mean I won't have enough points for your Christmas present this December.  The nice items in the ACME have become more & more expensive (with inflation ;-).

[IRonMaN]

In the event you wish to do some early pre-planning ------- ACME catalog page 229 - cement overshoes are on sale.

[abctax55]

But without Jensen's votes, can I afford them?

[IRonMaN]

I'll help pitch in with some of the votes I have tucked away in savings since ice floes are free.

[abctax55]

But Jeff.... we would miss you.  And your jokes 😉

[IRonMaN]

I'll pick an ice floe with good wifi reception 

[rbynaker]

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@IRonMaN wrote:

If I have to come up with $300,000 up front to be sent someplace to die, my instructions to my family will be to just put me on an ice floe on Lake Superior and wave goodbye.  It's a cheaper and more scenic way to go.

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Sounds delightful.  Superior was my favorite of the Great Lakes, just thought it was somehow . . . better.

Is this like the cemeteries and you have to reserve something in advance?  Or can anyone be floated out?

[IRonMaN]

Until the lake is filled up with the dearly departed, I think you can just check in whenever you want.

[abctax55]

" you can check out any time you like, but you can never leave" 

Sorta like Hotel California?

[IRonMaN]

As Gordon Lightfoot would say:

"The lake, it is said, never gives up her dead
When the skies of November turn gloomy"

So if you want it to be eternal, plan on going in November.

[itonewbie]

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@abctax55 wrote:

But without Jensen's votes, can I afford them?

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There, you have my vote for a Christmas present. 🤣

[itonewbie]

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@IRonMaN wrote:

I'll pick an ice floe with good wifi reception 

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At least you won't have to worry about the ice floe being leaky.  But shrinking real estate is a different story.

[itonewbie]

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@IRonMaN wrote:

Until the lake is filled up with the dearly departed, I think you can just check in whenever you want.

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What you said reminds me of this news story: https://www.theguardian.com/environment/2022/dec/31/lake-mead-human-remains-identification-climate-c...