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S.127 would alter medical-expense deduction for continuing‑care fees and freeze value of new ADUs, supporters say
Summary
The committee considered two tax provisions in S.127: removing a prior limit on deducting certain continuing‑care monthly fees as medical expenses and a proposed three‑year property-tax freeze that would exclude value from new ADUs and VHIP-funded rehabilitations.
The committee reviewed tax provisions near the end of S.127 that would (1) change a medical-expense deduction related to continuing-care facility monthly fees and (2) create a three-year property-value freeze for certain construction projects, including accessory dwelling units and projects using state housing grant or loan funds.
Medical-expense deduction
- Current practice and proposed change: Testimony described an existing Vermont income-tax deduction that allows taxpayers who itemize federally to deduct medical expenses above the standard deduction and exemptions. S.127 would remove a prior limitation that disallowed deducting recurring monthly payments to certain continuing-care facilities (sometimes called continuing-care retirement communities) where the monthly fee bundles lodging, food and other services that the payer may not be able to allocate to medical care. A committee member asked whether the change would allow taxpayers to deduct “condo fees” or bundled rent-like payments; counsel said the proposed amendment removes the limitation that previously excluded those recurring continuing‑care payments from the medical deduction for affected residents.
- Questions and context: Committee members asked whether the change applies only to a specific facility or to all qualifying continuing-care arrangements. Counsel and other staff said it is intended to remove the restriction for people previously limited from deducting those expenses; they noted federal deductibility rules and said further review may be needed.
Property-tax freeze for ADUs and VHIP-funded rehabilitations
- The bill would allow a three-year freeze in municipal and education tax assessments for (a) properties rehabilitated or built with a Vermont Housing Improvement Program (VHIP) grant or loan and (b) newly built accessory dwelling units (ADUs). Under the proposed freeze, municipalities would not count the ADU’s added assessed value for three years, intended to encourage new units.
- Lawmakers asked how the freeze would interact with affordability requirements for VHIP-funded projects and whether a short freeze could be used by owners who then market high-priced short-term rentals. Speakers asked staff to confirm whether prior programs tied freezes to affordability criteria and whether the new draft aligns time limits for affordability covenants with the tax freeze period.
Next steps
Committee members said they want fiscal notes and clarification about whether the medical-deduction change applies broadly or to specific facilities, and they asked staff to ensure the ADU/property-freeze language coordinates with state program affordability requirements. Several members urged caution and requested more precise drafting before advancing the tax provisions.
