Here’s some great news for your residents – and your organization. The Senate approved the “Further Consolidated Appropriations Act of 2020!” And there’s a little section in there – Division Q (no, not Avenue Q…) that preserves the threshold for Medical Tax Deductions for another two years.

What Actually Happened?

The tax deduction threshold for medical and dental expenses was slated to increase to 10% in 2020. Instead, this Appropriations Act preserved the 7.5% threshold for another two years, until 2022.

What Does That Mean?

The IRS allows taxpayers to deduct some of their health care costs once they have spent up to a certain threshold (currently, 7.5% of annual income). A bump up to 10% would have meant that many of our residents would pay significantly more in taxes, starting with FY 2019. Keeping the threshold to 7.5% for two more years equals tax savings for our residents; LeadingAge is working to make that threshold permanent in the coming year.

What Qualifies as a “Medical Tax Deduction?”

Great question – and residents will ask you. The IRS has two helpful tools you can share with them: an income tax preparation guide and an interactive tax deduction calculator.

So, What Should We Tell Our Residents?

First and foremost, it is good due diligence to review with your LPC’s legal counsel precisely what supportive statements or letters you will offer your residents. Encouraging your residents to review their itemized medical expenses and the relevant tax law with their financial advisor is typically a safe move.

Yes, long term care insurance often qualifies – but be careful when making affirmative statements to residents. If your LPC is a Type A / Life Care community, or offers a Life Care at Home insurance product, your residents may be able to itemize this as a Medical expense. If you haven’t already, it may be helpful to provide your residents with “a statement… to prove the amount (of an entrance fee) that is properly allocable to medical care (Page 10 of the guide.)”

Other LPC contract types aren’t as clear-cut, in terms of itemized medical tax deductions. If your contract type offers pre-paid “respite days” in your SNF or AL, itemized expenses related to such days might qualify. Typically, your Fee for Service or Rental contracts are not deductible. Again, encouraging your residents to seek qualified financial advice is a wise move, especially from a risk management perspective.

What’s Next?

In the New Year, LeadingAge will continue to promote the conversion of this ‘temporary extension’ into a permanent medical tax deduction threshold. You can help! Keep an eye out for Action Alerts and other opportunities for advocacy on this issue.