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Medical Expense Tax Deductions: A Guide for Senior Living Providers and Residents

July 19, 2012

In recent years, the deductibility of resident payments for senior living services as medical expenses has come under increased scrutiny. The very definition of "medical" expense is malleable, and the middle ground, inhabited by most senior living communities, that lies between traditional, deductible, "institutional" healthcare and non-deductible residential services and accommodations, is sometimes difficult to categorize. The increasing complexity of resident fee structures and refund arrangements casts further doubt on when a payment should be characterized as an expense, and what fees are attributable to medical care.

The growth of the senior living industry, along with the government's constant need for more sources of revenue, has resulted in expanded IRS and court activity related to residents' claims that some or all of their retirement community fees are deductible as medical expenses. Moreover, residents themselves havebecome more aggressive in seeking tax deductions after seeing their investments dwindle as a result of the recession. In an effort to maximize their deductions, they are questioning data given to them by senior living providers.

Seniors housing and care operators can use the tax deductibility of some or all resident fees as a marketingincentive in these times when it is more challenging to fill a vacancy. Managers often want to give residents data they can use in their tax reporting, but must be careful not to misrepresent the availability of medical expense tax deductions, and certainly do not want to give tax advice to their residents.

This Guide is designed to be used by anyone who is interested in the subject, including senior living operators, residents and their tax advisors, but ultimately the taxpayer is responsible for any deductions claimed.

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Paul Gordon

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415-995-3430 Fax

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