November 22, 2017 / 1:04 PM / a year ago

CORRECTED-YOUR MONEY-Uncertain future for those counting on medical deductions

 (In the 6th paragraph, corrects the title for Cristina Martin
    By Beth Pinsker
    NEW YORK, Nov 22 (Reuters) - At a retirement community near
Chicago, Jay Schachner and his friends are nervously awaiting
the fate of their medical expenses amid U.S. tax overhaul. 
    "Everyone is running scared, frankly," said Schachner, an
86-year-old retired property law attorney who lives in a planned
senior-living community in Chicago. 
    The U.S. House of Representatives voted in favor of a bill
that would eliminate the deduction for medical expenses. The
Senate version leaves it alone. 
    For most Americans, the medical deduction is currently
available for expenses above 10 percent of adjusted gross
    That is a pretty high bar for most people to clear, and only
about 9 million claim it. Those who do are typically old, sick
and not wealthy. About 75 percent of Americans who take the
medical deduction are over 50, and 70 percent make $75,000 a
year or less, according to AARP. 
    "It's a very middle-income deduction," said Cristina Martin
Firvida, director of financial security and consumer affairs at
    For Schachner, the deduction for medical expenses provides a
useful annual financial boost of several thousand dollars. The
community where he lives is part of the Kendal system, a
nonprofit continuing care retirement community. Residents pay an
entry fee that averages around $250,000, along with monthly fees
of about $3,000. A portion of those fees, from 20 percent to 30
percent, are counted as medical expenses that can be deducted. 
    Since the Schachners are spending down their nest egg, they
are offsetting some of the tax bite from selling assets by
taking a deduction for medical expenses. However, if the rules
change and their calculations are off, they will have to
scramble to make up the difference. 
    Richard Garrison, a 71-year-old retired chemical engineer
who lives in a Kendal property in Maryland, says that
eliminating the medical deduction will be a killer for planned
communities like his, where people sign up for a living
arrangement that will carry them from independent apartments to
nursing care. 
    Already more than 60 percent of Social Security
beneficiaries receive at least half their income from Social
Security, according to the Social Security Administration. Those
that completely run out of options end up on Medicaid, the
social safety net that ends up paying for a lot of end-of-life
    Just 1 percent of Kendal's 13 affiliates transition to 
Medicaid now, said Marvell Adams, executive director of the
Collington Community, a Kendal affiliate.
    Another snowball factor of eliminating the medical deduction
starts with seniors who suddenly have to cover several thousand
dollars more in medical expenses a year. They will have to draw
down more of their savings to cover those costs, putting them in
danger of running out of money faster. 
    And the more they withdraw from their saving in a year, the
more their Social Security benefits become taxable. 
    "It's a double hit to a lot of these folks," said John
Dundon, a tax accountant and enrolled agent from Denver. 
    Dire medical conditions also take a tax toll on
pre-retirees. Jennifer MacMillan, a tax accountant in Santa
Barbara, California, has a client who is in her 60s and still
working, making $120,000 a year. Her husband has Alzheimer's,
and the annual cost for him to live in a facility is $60,000.
    With big medical expenses since 2015, she ended up with very
little tax and got a refund, MacMillan said. 
    "Without that deduction, for anyone with a family member
with a serious illness, it will be devastating," she added.

 (Editing by Lauren Young and Jonathan Oatis)
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