Part of what you pay to a continuing care retirement community qualifies for the continuing care retirement community tax deduction as a medical expense on your federal return. Specifically, the share of your entrance fee and monthly fees that the community allocates to medical care can be added to your other qualified medical expenses on Schedule A, and you deduct the amount that exceeds 7.5% of your adjusted gross income.1Office of the Law Revision Counsel. 26 U.S. Code 213 – Medical, Dental, Etc., Expenses The rules reward good documentation, so most of the work is getting the right paperwork from your CCRC and running the numbers correctly.
Which Part of Your Fees Actually Qualifies
A CCRC contract bundles housing with a promise of future healthcare. The IRS lets you deduct the healthcare piece because your agreement obligates the community to provide medical and nursing care, even while you are living independently. Under IRS rules, you can include in medical expenses the part of a life-care fee or founder’s fee that is “properly allocable to medical care,” provided your agreement requires you to pay a specific fee as a condition of the community’s promise to provide lifetime care that includes medical care.2Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
The rest is personal living expense and never qualifies. Your apartment, meals, utilities, housekeeping, social programming, and fitness amenities are not deductible. If you are in a facility primarily for non-medical reasons, only the actual medical care portion counts.3Internal Revenue Service. Medical, Nursing Home, Special Care Expenses
How the Medical Percentage Is Set
You do not calculate the percentage yourself. Your CCRC does it each year based on its actual operating costs, tallying what it spent on medical and nursing care across all residents (nursing wages, medical supplies, pharmacy costs, depreciation on medical equipment) and dividing by total operating expenses. The result is the medical allocation percentage that applies to your fees.
The IRS requires this calculation to be reasonable and based on either the community’s own prior experience or data from a comparable facility.2Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses The same percentage must be applied consistently to all residents under the same contract type. You cannot negotiate a higher number, and the IRS can ask for supporting documentation if your return is audited.
Most CCRCs send residents an annual letter stating the exact medical allocation percentage for that tax year. There is no universal deadline for issuing it, but many communities aim for early in the filing season. If yours has not arrived by the time you are preparing your return, ask for it. Without that statement, you have no defensible basis for the deduction.
Applying the Percentage to Monthly Fees
The math is straightforward. Multiply your total monthly service fees for the year by the medical allocation percentage. If the community certifies 38% and you paid $60,000 in monthly fees, your deductible medical portion is $22,800. Add that to your other qualified medical expenses.
Applying the Percentage to the Entrance Fee
The same percentage applies to your entrance fee, but only the non-refundable portion qualifies. If your contract includes a 90% refund guarantee, only the remaining 10% is eligible.
This is where the deduction becomes genuinely large. Publication 502 includes a specific exception to the general rule against deducting prepaid medical expenses: the restriction does not apply when future care is purchased in connection with a lifetime care arrangement.2Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses 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 same percentage the community provides for monthly fees. The Tax Court has upheld this straightforward percentage approach over the more complex actuarial calculations the IRS once tried to require.
An example. You pay a $300,000 entrance fee, $150,000 of which is non-refundable. If the medical allocation is 35%, you have a $52,500 medical expense in your move-in year. Combined with monthly fees and other healthcare costs, this often produces a substantial first-year deduction.
How Contract Type Changes the Size of the Deduction
The percentage varies because each contract type bundles a different amount of future healthcare into the fees.
- Type A (Life Care) contracts prepay unlimited future medical and nursing care with a mostly flat monthly fee. A large share of what you pay funds healthcare, so Type A produces the highest medical allocation percentages and the largest deductions.
- Type B (Modified) contracts cover a limited amount of care, such as a set number of skilled nursing days per year, before you pay market rates. The medical allocation is smaller than Type A but still meaningful.
- Type C (Fee-for-Service) contracts have lower upfront and monthly costs, and you pay full market price for healthcare as needed. Little of your regular fees goes to medical care, so the deductible percentage is typically the smallest.
The 7.5% AGI Floor and Whether Itemizing Pays Off
You claim the medical portion on Schedule A of Form 1040, combined with all other qualified medical expenses for the year, including prescriptions, doctor and dental copays, vision care, and out-of-pocket health insurance premiums.4Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040) Only the amount exceeding 7.5% of your AGI is deductible.1Office of the Law Revision Counsel. 26 U.S. Code 213 – Medical, Dental, Etc., Expenses If your AGI is $80,000, the first $6,000 of medical expenses produces nothing. If your total qualified expenses come to $15,000, you deduct $9,000. The 7.5% threshold is permanently set in the statute, with no scheduled expiration.
Itemizing only helps if your itemized deductions exceed the standard deduction. For tax year 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
From 2025 through 2028, taxpayers age 65 and older can claim an additional $6,000 deduction per person on top of the existing additional standard deduction for seniors. A married couple where both spouses are 65 or older gets an extra $12,000.6Internal Revenue Service. Check Your Eligibility for the New Enhanced Deduction for Seniors For that couple in 2026, the combined standard deduction can exceed $44,000, which raises the bar for itemizing.
The move-in year is often the strongest opportunity. The medical portion of the entrance fee alone can push itemized deductions well past the standard deduction. In later years, when only the monthly fee allocation applies, the math may tip back to the standard deduction. Run it both ways each year.
What If You Later Receive an Entrance Fee Refund
Some contracts refund part of the entrance fee if you leave or pass away within a certain period. If you already deducted the medical portion and then receive a refund, the tax benefit rule under IRC Section 111 requires you to include the refunded amount in gross income for the year you receive it, but only to the extent the original deduction actually reduced your tax.7Office of the Law Revision Counsel. 26 U.S. Code 111 – Recovery of Tax Benefit Items
If the original deduction did not reduce your tax (for example, you were below the 7.5% AGI floor that year), the refund is not taxable. This is easy to miss. Keep your original returns and allocation letters for as long as any refund remains possible under the contract.
Paying a Parent’s CCRC Fees
If you are paying for a parent, you can deduct the medical portion on your own return only if your parent qualifies as your dependent. The key requirement is the support test: you must provide over half of your parent’s total financial support for the year.2Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
When siblings share the cost and no one covers more than half, a multiple support agreement (IRS Form 2120) can designate one sibling to claim dependency. That designated person can deduct only medical expenses they personally paid; amounts other siblings paid do not count.
There is one important allowance. 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. Publication 502 specifically carves this out for medical expense purposes.
Long-Term Care Insurance Interactions
Any CCRC healthcare cost reimbursed by a qualified long-term care insurance policy is not deductible. The statute allows a deduction only for expenses “not compensated for by insurance or otherwise.”1Office of the Law Revision Counsel. 26 U.S. Code 213 – Medical, Dental, Etc., Expenses If your policy reimburses $10,000 of nursing care that also sits inside the community’s medical allocation, reduce your deduction by $10,000.
Premiums paid for a qualified long-term care policy are separately deductible as medical expenses, subject to age-based annual caps. For 2026, the caps range from $500 for taxpayers age 40 or younger up to $6,200 for those 71 and older. These premiums combine with your other medical expenses and are subject to the same 7.5% AGI floor.
Records to Keep
This deduction is documentation-heavy, and the IRS treats it that way. If your return is reviewed, you will need to produce specifics.
- The annual allocation letter from your CCRC showing the medical percentage for each tax year claimed.
- Your CCRC contract, showing the fee structure, refund terms, and the community’s obligation to provide lifetime care including medical services.
- Bank statements or cancelled checks documenting monthly fee payments and the entrance fee payment.
- Documentation of how much of the entrance fee is non-refundable, since only that portion qualifies.
- Receipts and explanation-of-benefits statements for the other medical expenses you combined with the CCRC allocation to clear the 7.5% floor.
Hold 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 the fee. Monthly fee records follow the standard three-year retention rule from the filing date of each return.