Yes. Part of the entrance fee you pay to move into a continuing care retirement community is tax deductible as a medical expense. The deductible share is the percentage the community itself allocates to medical care, commonly between 20% and 40% of the total fee. That amount joins your other medical expenses for the year and follows the standard rules: you have to itemize, and only the portion of total medical expenses above 7.5% of your adjusted gross income actually reduces your tax.1Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
How Much of the Entrance Fee You Can Deduct
You do not pick the medical percentage. The retirement community calculates it, and every resident uses the same figure for a given year. The most common method compares the community’s medical expenses to its total operating expenses. If a community spent $12 million on medical services out of $40 million in total costs, the medical share is 30%, and that percentage applies to your entrance fee. Some communities use an actuarial per-capita dollar figure instead. Both approaches have been accepted in practice.
Contract type is the biggest driver of how large that percentage runs.
- Life Care (Type A) contracts carry the highest entrance fees but lock in future levels of care at little or no increase in monthly charges. Because more of the fee prepays future medical services, the deductible percentage is typically the largest.
- Modified (Type B) contracts have mid-range entrance fees covering current care, with extra charges if you later need assisted living or nursing. The medical share is usually smaller than a Type A.
- Fee-for-Service (Type C) contracts have the lowest entrance fees, with residents paying market rates for higher care when it becomes necessary. The medical share is usually smallest of the three.
A Type A resident paying a $500,000 entrance fee might see a 38% medical allocation. A Type C resident at the same community might see something closer to 15%. Ask for the community’s current medical expense percentage before you sign, so the deduction shows up in your planning rather than as a surprise.
The Two Hurdles: Itemizing and the 7.5% AGI Floor
Federal law only allows a deduction for medical expenses above 7.5% of your adjusted gross income.1Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses If your AGI is $120,000, the first $9,000 of medical expenses produces no deduction. Only the amount above $9,000 counts.
You also have to itemize on Schedule A instead of taking the standard deduction.2Internal Revenue Service. Topic No. 502, Medical and Dental Expenses For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household, with an additional amount for taxpayers age 65 and older.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
The entrance fee year is usually the one year both hurdles are easy to clear. A $400,000 entrance fee with a 35% medical allocation produces $140,000 of qualified medical expense in a single year. Even after subtracting 7.5% of AGI, what remains almost always pushes itemized deductions well above the standard deduction. In later years, without that lump sum, many residents go back to the standard deduction.
Getting the Tax Letter From the Community
The community documents the medical percentage in a written statement, sometimes called a Tax Letter. IRS Publication 502 confirms that residents can rely on this statement, provided it is based on the community’s prior experience or data from a comparable community.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses Keep it with your tax records. If the IRS questions the deduction, this letter is your primary evidence.
A quick worked example. You pay a $400,000 entrance fee. The community’s medical percentage is 35%. Your qualified medical expense from the entrance fee alone is $140,000. Add that to every other medical cost you paid during the year, subtract 7.5% of your AGI, and the remainder goes on Schedule A.
The deduction lands in the tax year you pay the fee, even if you never use a single day of nursing care. That applies whether you pay in a lump sum or in installments, though installment payments are only deductible as you actually make them. This is an explicit exception to the general rule against deducting prepaid medical expenses, because a lifetime care arrangement gives you a contractual right to care that has value the moment you pay for it.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses
Monthly Fees Are Deductible Too
The medical expense deduction is not limited to the entrance fee. A portion of your recurring monthly charges also qualifies. Monthly fees cover housing, meals, maintenance, and access to medical staff and facilities. The housing, food, and utilities share is a personal living expense and never deductible. The medical share is.
The community’s annual statement breaks out the medical percentage for monthly fees, and you apply it to your total monthly payments for the year. If you pay $4,000 per month and the medical allocation is 28%, that’s $1,120 per month, or $13,440 over a full year. That amount joins your other medical costs (including the entrance fee, if paid the same year) before applying the 7.5% AGI floor.2Internal Revenue Service. Topic No. 502, Medical and Dental Expenses
Unlike the one-time entrance fee deduction, the monthly fee deduction repeats every year you live in the community. Keep each year’s tax letter on file.
What Happens if Part of the Entrance Fee Is Refundable
Many contracts include a refund provision: if you leave the community or pass away within a certain period, some portion of the entrance fee comes back. A common misconception is that only the non-refundable share qualifies for the deduction. That is not how the IRS treats it.
The IRS has ruled since the mid-1970s that the medical portion of the entrance fee is deductible in the year paid, even when the contract includes a conditional refund right. The catch shows up later. If you do receive a refund, the portion attributable to medical expenses you previously deducted must be reported as income in the year you receive it, under the general tax benefit rule.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses One nuance: if the earlier deduction did not actually reduce your tax (because the 7.5% AGI floor absorbed most of it), you do not have to report that portion of the refund as income.
Choose the contract that fits the care arrangement you want, not one that avoids refundability. Just plan for the tax consequences if a refund ever materializes.
Paying a Parent’s Entrance Fee
Adult children sometimes fund a parent’s move. If you pay the entrance fee with your own money, you may be able to claim the medical portion on your own return, but the parent generally has to qualify as your dependent for medical expense purposes.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses
A parent counts as a qualifying relative if you provide more than half of their financial support during the year. For medical expense purposes the IRS relaxes some of the usual dependency tests: you can still claim the deduction even if your parent earned more than the standard gross income threshold, filed a joint return, or could be claimed as a dependent by someone else.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses
When siblings split the cost, a multiple support agreement can work. If two or more relatives collectively provide more than half of the parent’s support but no single person covers more than half alone, the group can designate one sibling to claim the medical deduction, with the others waiving the claim on IRS Form 2120. The 7.5% AGI floor still applies to the claiming sibling’s return, so the family member with the lowest AGI often gets the biggest tax benefit.
A Note on Higher Levels of Care
The percentage-based deduction describes life in independent living. If you later move into the assisted living or skilled nursing wing, different rules take over. When the primary reason for being in a nursing facility is medical care, the full cost of that care, including meals and lodging, is deductible.4Internal Revenue Service. Publication 502 – Medical and Dental Expenses If the stay is primarily custodial, only the portion directly attributable to medical or nursing services qualifies.5Internal Revenue Service. Medical, Nursing Home, Special Care Expenses Keep those direct-care charges separate from the community’s percentage-based medical allocation on your return. The billing statements should distinguish the two. If they don’t, ask.