Continuing Care Retirement Community Tax Deduction: Fees and Refunds

A continuing care retirement community tax deduction lets you write off the portion of your entrance fee and monthly fees that your community allocates to medical care. You claim it as an itemized medical expense on Schedule A, and like all medical deductions, only the amount above 7.5% of your adjusted gross income actually reduces your tax.¹ The size of the deduction depends on your contract type, the medical percentage your CCRC calculates each year, and whether any part of your entrance fee is refundable.

What Actually Qualifies as a Medical Expense

Your CCRC fees pay for two things at once: a place to live and a contractual promise of future medical and nursing care. IRS Publication 502 allows you to include in medical expenses the part of a life-care or founder’s fee that is “properly allocable to medical care,” so long as your agreement requires you to pay that fee as a condition of the community’s obligation to provide lifetime care including medical care.²

Everything else is a personal living expense and stays out of the calculation. Your apartment, meals, utilities, housekeeping, social programming, and fitness amenities do not qualify. The IRS is explicit that when someone is in a facility primarily for non-medical reasons, only the actual medical care portion is deductible.³

How Your Contract Type Shapes the Deduction

CCRCs generally use one of three contract structures, and each bundles a different amount of future healthcare into the fees. That changes the medical allocation percentage, which in turn changes how much you can deduct.

Type A (Life Care): You prepay for unlimited future medical and nursing care, and your monthly fee stays roughly flat even if your care needs grow. A large share of your fees funds healthcare, so Type A contracts produce the highest medical allocation percentages and the largest deductions.
Type B (Modified): The community covers a limited amount of care, such as a set number of days of skilled nursing per year, before you begin paying market rates. The medical allocation is smaller than under Type A but still meaningful.
Type C (Fee-for-Service): Upfront and monthly costs are lower, but you pay the full market price for healthcare when you use it. Little of your regular fees goes toward medical care, so the deductible percentage is usually the smallest of the three.

Getting the Medical Percentage and Applying It

You do not calculate the percentage yourself. Your CCRC determines it each year by tallying what it spent on medical and nursing care across all residents (nursing wages, medical supplies, pharmacy costs, depreciation on medical equipment) and dividing that by its total operating expenses. The IRS requires the calculation to be reasonable and based on either the community’s own prior experience or data from a comparable facility.² The same percentage applies to every resident under the same contract type, and you cannot negotiate a higher number.

Most communities issue an annual letter or statement showing the medical allocation percentage for that tax year. If yours hasn’t arrived by filing season, ask for it. Without that statement you have no defensible basis for the deduction if the IRS asks.

Monthly Fees

The math is straightforward. Multiply your total monthly service fees paid during the year by the medical allocation percentage. At a 38% allocation on $60,000 in monthly fees, your deductible medical portion is $22,800. That amount joins your other qualified medical expenses for the year.

The Entrance Fee

The same percentage applies to the entrance fee, but only the non-refundable portion qualifies. If your contract includes a 90% refund guarantee, only the remaining 10% feeds into the medical allocation calculation.

This is where the deduction can get large. Publication 502 carves out an exception to the usual rule against deducting prepaid medical expenses when future care is purchased as part of a lifetime care arrangement.² Under IRS Revenue Ruling 93-72, you can claim the medical portion of a non-refundable entrance fee in the year you pay it, using the percentage method the community provides. The Tax Court has upheld this straightforward percentage approach over more complex actuarial calculations.

A worked example: on a $300,000 entrance fee that is $150,000 non-refundable, a 35% medical allocation produces a $52,500 deduction in the year you move in.

Claiming the Deduction on Your Return

The medical portion of your CCRC fees goes on Schedule A of Form 1040, combined with your other qualified medical expenses: prescription costs, doctor and dental copays, vision care, and out-of-pocket health insurance premiums.⁴

The 7.5% AGI Floor

Only the amount of your total medical expenses above 7.5% of adjusted gross income is deductible.¹ On an $80,000 AGI, the first $6,000 of medical costs produces nothing; $15,000 in total expenses produces a $9,000 deduction. The 7.5% threshold is set permanently in the statute, so you can plan around it.

Itemizing vs. the Standard Deduction

Itemizing is only worthwhile if your itemized total exceeds the standard deduction. For tax year 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.⁵ On top of that, from 2025 through 2028, taxpayers age 65 and older can claim an additional $6,000 deduction per person beyond the existing additional standard deduction for seniors.⁶ A married couple both over 65 could carry a combined standard deduction above $44,000 in 2026, which raises the bar considerably.

The year you move in is usually the strongest year for itemizing because the entrance fee’s medical portion lands all at once. In later years, when only the monthly allocation applies, the math may tip back toward the standard deduction. Run both calculations each year.

If You Later Receive an Entrance Fee Refund

Some contracts refund part of the entrance fee if a resident leaves or dies within a defined period. If you previously deducted the medical portion of that fee and later receive a refund, the tax benefit rule under IRC Section 111 requires you to include the refunded amount in gross income the year you receive it, but only to the extent the original deduction actually reduced your tax.⁷ If the deduction didn’t cut your tax, say because you were below the 7.5% floor the year you claimed it, the refund isn’t taxable.

When a refund flows to a deceased resident’s estate or heirs, the treatment is different and depends on what the resident deducted and how the contract is structured. Get a tax professional or estate attorney involved before filing.

Paying a Parent’s CCRC Fees

If you cover a parent’s CCRC costs, you can deduct the medical portion on your own return only if your parent qualifies as your dependent. The core requirement is the support test: you must provide more than half of your parent’s total financial support for the year.²

When several siblings share the cost and no one person covers more than half, a multiple support agreement (Form 2120) can designate one of you to claim the dependency. The designated person can deduct medical expenses they personally paid for the parent, but not amounts paid by the other siblings.

There’s a useful carve-out for medical expenses specifically. Even if your parent’s gross income is too high to qualify as your dependent under the normal rules, you can still deduct medical expenses you paid for them as long as every other dependency test is met.

Long-Term Care Insurance Interactions

If a long-term care policy reimburses CCRC healthcare costs, you cannot also deduct those reimbursed amounts. Section 213 only allows deductions for expenses “not compensated for by insurance or otherwise.”¹ A $10,000 nursing care reimbursement reduces your deductible medical allocation by that $10,000.

Separately, premiums you pay for a qualified long-term care policy are themselves deductible as medical expenses, subject to age-based annual caps. For 2026 those caps run from $500 for individuals age 40 or younger up to $6,200 for those 71 and older. Those premium amounts join your other medical expenses under the same 7.5% AGI floor.

Records to Keep

This is a documentation-heavy deduction, and if the IRS reviews your return, you’ll need specifics.

The annual allocation letter from your CCRC showing the medical percentage for each year you claimed the deduction.
Your CCRC contract, showing the fee structure, refund terms, and the community’s lifetime care obligation.
Payment records (bank statements or cancelled checks) for both monthly fees and the entrance fee.
Documentation of the non-refundable portion of the entrance fee, since only that part feeds the deduction.
Receipts and explanations of benefits for the other medical expenses you’re stacking to clear the 7.5% floor.

Keep entrance fee documentation for as long as any refund remains possible under your contract, plus at least three years after the last return that used that fee in a deduction. Monthly fee records follow the standard three-year retention rule from each return’s filing date.

1
Office of the Law Revision Counsel. 26 U.S. Code 213 – Medical, Dental, Etc., Expenses
2
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
3
Internal Revenue Service. Medical, Nursing Home, Special Care Expenses
4
Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040)
5
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
6
Internal Revenue Service. Check Your Eligibility for the New Enhanced Deduction for Seniors
7
Office of the Law Revision Counsel. 26 U.S. Code 111 – Recovery of Tax Benefit Items