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What Are Some of the Tax Differences Between 55+ and Life Plan Communities?

Senior couple talking about finances with a consultant

While you were working, you had to live where your job required — and that meant paying the taxes your state imposed. Now that you’re retired, you may not be able to avoid taxes altogether, but there are strategies that can offer significant tax benefits. A good place to start is by considering the state you live in and the type of community you choose — like a 55+ or Life Plan Community. But beyond the differences we explore here, does one offer more tax benefits than the other? Let’s take a look. 

First, Choose a Tax Friendly Location

Many retirement communities are located in tax-friendly states – like Pennsylvania – that offer excellent tax benefits for retirees. Some of Pennsylvania’s most attractive tax breaks include: 

  • No tax on social security: Pennsylvania is one of the few states with no income tax on retirement income. That means no state tax on Social Security, IRA distributions, 401(k) withdrawals or pensions. This provides greater flexibility and reduces your overall retirement tax burden. 
  • No estate tax: Pennsylvania doesn’t have an estate tax, which simplifies estate planning and allows you to pass more of your wealth on to your heirs.  
  • Inheritance tax exemptions: Transfers to a surviving spouse are exempt from inheritance tax. 
  • Tax rebate program for seniors: Pennsylvania provides a rebate to eligible retirees and people with disabilities ranging from $380 to $1,000. 
  • No gift tax: Pennsylvania does not have a state gift tax, so you can give gifts without having to pay state taxes. 

In Summary: While Pennsylvania offers some tax advantages, it’s important to consider the full tax picture and how it might affect your individual circumstances. Consulting with a tax professional can help you understand how Pennsylvania’s tax laws apply to you. 

Property Taxes and Retirement Communities

When planning for retirement, it’s important to budget for both current and future expenses – such as health care, taxes, home maintenance and lifestyle goals like travel or hobbies. Where you choose to live can significantly impact your financial well-being today and in the future. 

Tax Benefits of 55+ Communities

Some 55+ communities in Pennsylvania may offer arrangements where you don’t have to pay property taxes. These details are typically outlined in the resident agreements. However, if you own your home in a 55+ community, you may still be responsible for property taxes in addition to the cost of upkeep and maintenance. 

Tax Benefits of Life Plan Communities

By moving to a Life Plan Community with a Life Care contract – such as Freedom Village at Brandywine – you may be eligible for tax advantages, including a one-time entrance fee deduction and ongoing deductions for your monthly fees. For any part of your entry fee or monthly fees to be tax-deductible, a portion of those payments must be allocated by the community as pre-paid health care expenses. 

It’s important to remember that your entrance fee deduction and monthly fee deductions are available on a “use it or lose it” basis. You’ll need to plan your taxable income each year to ensure you receive the maximum benefit. 

Find a Local Financial Advisor

Before making any major financial decisions, be sure to consult with a Pennsylvania-based financial advisor or planner to help you optimize your retirement strategy. 

Our Lifestyle Benefits You and Your Finances

Beyond tax advantages, there are many other reasons to consider a Life Plan Community over a 55+ community. Ready to make a solid financial investment in your retirement? Explore your options at Freedom Village at Brandywine today using our Community Assistant chat feature or by contacting us here.