Tax Scams and CCRC Deduction

Taxes are on the minds of many older adults as April 15 looms closer. Many changes in the tax law that began in 2018 continue for the most part unchanged for the current tax year. Two related tax issues – one negative and one positive – that you should know about, however, are tax scams and tax deductions associated with living in a life plan community.

Tax Updates for the Current Year

The medical deduction remains at 7.5% of adjusted gross income for tax year 2023. It has remained at 7.5% since the 2018 tax law change after initial drafts of the tax bill had the threshold increasing to 10% of adjusted gross income. Many older adults take advantage of this deduction.

The SECURE Act of 2020 changed the age when you must begin withdrawing and paying ordinary income tax on funds from your IRA. Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts annually. You generally need to start taking withdrawals from your traditional IRA and retirement plan accounts when you reach 72 (73 if you reach 72 after Dec. 31). 

You can make IRA contributions as long as you have taxable compensation. Prior to 2020, you could not make IRA contributions after age 70 ½.

Instead of withdrawing and paying taxes on the money from your IRA for the Required Minimum Distributions (RMD), you can tell the custodian of the account to send your withdrawal of up to $100,000 directly to a charitable organization. This is called a Qualified Charitable Distribution (QCD). 

The standard deduction increased to $13,850 if single or filing separately for tax year 2023. Add an additional $1,850 if you are over age 65. If you are married and filing jointly, the standard deduction is $27,700. If either of you are over age 65, you can take an additional $1,500 per qualifying individual. 

The Skinny on Tax Scams

According to the IRS, “Thousands of people have lost millions of dollars and their personal information to tax scams. Scammers use the regular mail, telephone, or email to set up individuals, businesses, payroll and tax professionals. The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.”

Here are 5 scams to keep on your radar:

1. Scammers claiming to be able to suspend or cancel your Social Security Number
2. Scammers pop up after a disaster so check out the organization first and always pay by check or credit card so you have a record or your donation
3. Scammers can be sloppy so look for incorrect grammar, spelling or phrasing
4. Scammers like to pose as tax preparers so check with the Better Business Bureau and look for red flags, such as they don’t offer electronic filing and service fees are based on refund amount
5. Scammers also like to pretend they’re from the Taxpayer Advocate Service (a legitimate IRS organization). “Criminals are making phone calls look like they’re coming from the TAS office in Houston or Brooklyn, according to the IRS, and when taxpayers return the calls — which often tell victims they’re entitled to a large tax refund — the criminals ask for personal information such as a Social Security number,” according to NerdWallet.

And keep in mind scammers like to target older adults so talk to loved ones about how to spot an imposter: automated robocalls; demand for automatic payment; and follow-up calls claiming to be police and using caller IDs that support their claim.

Tax Deduction for CCRC residents

Many continuing care retirement communities require residents to pay an entry fee, which depending on the community could be $100,000 or more.

Brad Breeding, cofounder of myLifeSite, explains how the entry fee and possibly a portion of the monthly fee can be deducted from taxes as a prepaid medical expense.

“The amount of deductibility is largely dependent on the type of residency contract held by the resident. In order for any part of the entry fee and monthly fee to be tax-deductible, a portion of those fees must be accounted for by the community as a pre-paid healthcare expense. It’s also important to know that only non-refundable portions of the entry fee can be used for tax deduction purposes. Any refundable portion of the entry fee should not be counted in the formula to determine the deductible amount. If a resident deducts any portion of the entry fee that is eventually refunded via a ‘return of capital contract’ then the refundable portion could later be taxable as income.”

A portion of fees for Kendal at Oberlin residents are considered pre-paid healthcare expense. The deductible amounts vary from year to year and are determined annually by the community, based on the relative costs of providing care services. To get an idea of what the deductions may be, ask for a copy of the community’s tax letter from the previous year stating the deductible amounts.

“Most Kendal at Oberlin residents receive a significant tax deduction for the medical component of the monthly fee. New residents receive an even greater tax deduction for the medical component of the entry fees they pay,” said Vance DeBouter, CPA in Oberlin.

This blog was originally published in 2021 and was updated in 2024.

In the past, Molly Kavanaugh frequently wrote about Kendal at Oberlin for the Cleveland Plain Dealer, where she was a reporter for 16 years. Now we are happy to have her writing for the Kendal at Oberlin Community.

About Kendal at Oberlin: Kendal is a nonprofit life plan community serving older adults in northeast Ohio. Located about one mile from Oberlin College and Conservatory, and about a 40-minute drive from downtown Cleveland, Kendal offers a vibrant resident-led lifestyle with access to music, art and lifelong learning.