Long-Term Care Act of 1994

Summary: Long-Term Care Act of 1994 - Amends the Internal Revenue Code to provide for the nonrecognition of gain from the sale of a principal residence if the new residence is a qualified continuing care retirement community and the taxpayer has attained the age 55. 
Excludes from gross income amounts withdrawn from individual retirement plans or certain pension plans to pay qualified long-term care insurance expenses. 
Increases the one-time exclusion of gain on the sale of a principal residence by individuals who have attained age 55 by the amount set aside for the long-term care of such individuals. 
Requires State mortgage loan laws to expressly apply to reverse mortgage loans. 
Provides that proceeds from reverse mortgage loans shall not be treated as income or receipts for means-tested programs.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Long-Term Care Act of 1994''.

SEC. 2. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL RESIDENCE TO EXTENT 
              PROCEEDS USED FOR ENTRANCE INTO CONTINUING CARE 
              RETIREMENT COMMUNITY.

    (a) In General.--Section 1034 of the Internal Revenue Code of 1986 
(relating to rollover of gain of sale of principal residence) is 
amended by redesignating subsection (l) as subsection (m) and by 
inserting after subsection (k) the following new subsection:
    ``(l) Nonrecognition of Gain If New Residence Is Qualified 
Continuing Care Retirement Community.--
            ``(1) In general.--Gross income shall not include gain from 
        the sale of the principal residence of the taxpayer if--
                    ``(A) the taxpayer attained age 55 before the date 
                of such sale, and
                    ``(B) within the 2-year period beginning on such 
                date, the taxpayer has as his principal residence a 
                qualified continuing care retirement community.
            ``(2) Limitation.--The amount excluded from gross income 
        under paragraph (1) shall not exceed the amount paid by the 
        taxpayer during such 2-year period to such retirement community 
        in order for the taxpayer or his spouse to reside in such 
        community.
            ``(3) Recapture in certain cases.--
                    ``(A) In general.--If the taxpayer ceases to have 
                as his principal residence (other than by reason of 
                death) a qualified continuing care retirement 
                community, the amount excluded from gross income under 
                paragraph (1) shall be included in gross income for the 
                taxable year in which such cessation occurs.
                    ``(B) Exceptions.--The amount includible in gross 
                income under subparagraph (A) shall be reduced by the 
                amount paid by the taxpayer (during the 6-month period 
                after the date of cessation)--
                            ``(i) to a qualified continuing care 
                        retirement community in order for the taxpayer 
                        or his spouse to reside in such community (but 
                        only if the community becomes the principal 
                        residence of the taxpayer or his spouse during 
                        such period), or
                            ``(ii) for qualified long-term care 
                        expenses (as defined in section 408(d)(8)) of 
                        the taxpayer or his spouse.
            ``(4) Special rules for married individuals.--In the case 
        of a husband and wife who file a joint return for the taxable 
        year which includes the date of the sale of the old residence--
                    ``(A) the age requirement of paragraph (1)(A) shall 
                be treated as met if either spouse meets such 
                requirement, and
                    ``(B) paragraph (3) shall be applied by taking into 
                account one-half of the gain with respect to each 
                spouse.
            ``(5) Qualified continuing care retirement community.--For 
        purposes of this subsection, the term `qualified continuing 
        care retirement community' has the meaning given such term by 
        section 7872(g).''
    (b) Effective Date.--The amendments made by this section shall 
apply to old residences sold after the date of the enactment of this 
Act.

SEC. 3. EXCLUSION FROM GROSS INCOME FOR AMOUNTS WITHDRAWN FROM 
              INDIVIDUAL RETIREMENT PLANS FOR LONG-TERM CARE.

    (a) In General.--Subsection (d) of section 408 of the Internal 
Revenue Code of 1986 (relating to tax treatment of distributions from 
individual retirement plans) is amended by adding at the end thereof 
the following new paragraph:
            ``(8) Distributions for qualified long-term care 
        expenses.--
                    ``(A) In general.--No amount (which but for this 
                paragraph would be includible in the gross income of 
                the payee or distributee under paragraph (1)) shall be 
                included in gross income during the taxable year if--
                            ``(i) the payee or distributee has attained 
                        age 59\1/2\ on or before the date of the 
                        distribution, and
                            ``(ii) the distribution is used during such 
                        year to pay qualified long-term care expenses 
                        for the benefit of the payee or distributee or 
                        the spouse of the payee or distributee if such 
                        spouse has attained age 59\1/2\ on or before 
                        the date of the distribution.
                    ``(B) Qualified long-term care expenses.--For 
                purposes of subparagraph (A), the term `qualified long-
                term care expenses' means any amount paid--
                            ``(i) as premiums for any qualified long-
                        term care insurance policy, or
                            ``(ii) for services of a type for which 
                        coverage may be provided under a qualified 
                        long-term care insurance policy.
                    ``(C) Qualified long-term care insurance policy.--
                For purposes of subparagraph (B)--
                            ``(i) In general.--Subject to clause (ii), 
                        the term `qualified long-term care insurance 
                        policy' means an insurance policy or rider, 
                        issued by a qualified issuer, and certified by 
                        the Secretary of Health and Human Services (in 
                        accordance with procedures similar to the 
                        procedures prescribed in section 1882 of the 
                        Social Security Act (42 U.S.C. 1385ss) used in 
                        the certification of medicare supplemental 
                        policies (as defined in subsection (g)(1) of 
                        such section)) to be advertised, marketed, 
                        offered, or designed to provide coverage--
                                    ``(I) for not less than 12 
                                consecutive months for each covered 
                                person,
                                    ``(II) on an expense incurred, 
                                indemnity, or prepaid basis,
                                    ``(III) for 1 or more medically 
                                necessary, diagnostic services, 
                                preventive services, therapeutic 
                                services, rehabilitation services, 
                                maintenance services, personal care 
                                services, or continuing care services, 
                                and
                                    ``(IV) provided in a setting other 
                                than an acute care unit of a hospital.
                            ``(ii) Coverage specifically excluded.--
                        Such term does not include any insurance policy 
                        or rider which is offered primarily to provide 
                        any combination of the following kinds of 
                        coverage:
                                    ``(I) Basic Medicare supplement 
                                coverage.
                                    ``(II) Basic hospital expense 
                                coverage.
                                    ``(III) Basic medical-surgical 
                                expense coverage.
                                    ``(IV) Hospital confinement 
                                indemnity coverage.
                                    ``(V) Major medical expense 
                                coverage.
                                    ``(VI) Disability income protection 
                                coverage.
                                    ``(VII) Accident only coverage.
                                    ``(VIII) Specified disease 
                                coverage.
                                    ``(IX) Specified accident coverage.
                                    ``(X) Limited benefit health 
                                coverage.
                            ``(iii) Qualified issuer.--For purposes of 
                        clause (i), the term `qualified issuer' means 
                        any of the following:
                                    ``(I) Private insurance company.
                                    ``(II) Fraternal benefit society.
                                    ``(III) Nonprofit health 
                                corporation.
                                    ``(IV) Nonprofit hospital 
                                corporation.
                                    ``(V) Nonprofit medical service 
                                corporation.
                                    ``(VI) Prepaid health plan.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to distributions after the date of the enactment of this Act in 
taxable years ending after such date.

SEC. 4. INCREASE IN EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE BY 
              INDIVIDUALS WHO HAVE ATTAINED AGE 55 FOR AMOUNTS SET 
              ASIDE FOR LONG-TERM CARE.

    (a) In General.--Paragraph (1) of section 121(b) of the Internal 
Revenue Code of 1986 (relating to one-time exclusion of gain from sale 
of principal residence by individual who has attained age 55) is 
amended to read as follows:
            ``(1) Dollar limitation.--
                    ``(A) In general.--The amount of the gain excluded 
                from gross income under subsection (a) shall not exceed 
                $125,000 ($62,500 in the case of a separate return by a 
                married individual).
                    ``(B) Exception for amounts set aside for long-term 
                care.--
                            ``(i) In general.--The dollar amount 
                        applicable under subparagraph (A) shall be 
                        increased by the amount set aside by the 
                        taxpayer (during the taxable year in which the 
                        sale or exchange occurs) in a separate account 
                        the principal and earnings on which are to be 
                        used by the taxpayer only to pay qualified 
                        long-term care expenses (as defined in section 
                        408(d)(8)) for the benefit of the taxpayer or 
                        the spouse of the taxpayer.
                            ``(ii) Tax on amounts not used for long-
                        term care expenses.--If any amount paid or 
                        distributed from an account described in clause 
                        (i) is used other than to pay qualified long-
                        term care expenses (as so defined) for the 
                        benefit of the taxpayer or the spouse of the 
                        taxpayer--
                                    ``(I) such amount shall be 
                                includible in gross income for the 
                                taxable year in which paid or 
                                distributed, and
                                    ``(II) the taxpayer's tax imposed 
                                by this chapter for such taxable year 
                                shall be increased by an amount equal 
                                to 10 percent of such amount.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales and exchanges after the date of the enactment of this 
Act in taxable years ending after such date.

SEC. 5. FEDERAL PREEMPTION RELATING TO REVERSE MORTGAGE LOANS.

    (a) Laws Relating Generally to Mortgages.--No State or political 
subdivision of a State may establish, continue in effect, or enforce 
any mortgage loan law, as such law applies to any reverse mortgage 
loan, unless the mortgage loan law expressly applies to reverse 
mortgage loans (or to certain types of such loans) or on its face 
evidences the existence of reverse mortgage loans (or certain types of 
such loans).
    (b) Savings Provision.--Subsection (a) may not be construed--
            (1) to annul, alter, or affect any mortgage loan law as 
        such law applies to any mortgage loan that is not a reverse 
        mortgage loan; or
            (2) to limit the authority of any State or any political 
        subdivision of a State to establish, continue in effect, or 
        enforce any provision of law expressly applicable to reverse 
        mortgage loans (or certain types of such loans).
    (c) Definitions.--For purposes of this section, the following 
definitions shall apply:
            (1) Mortgage loan.--The term ``mortgage loan'' means any 
        loan for the unpaid purchase price of real property or advances 
        on real property that, pursuant to the laws of the applicable 
        State or political subdivision of a State, is secured by any 
        lien on or interest in the property.
            (2) Mortgage loan law.--The term ``mortgage loan law'' 
        means any law that applies to any mortgage loan or regulates, 
        limits, authorizes, or otherwise affects any mortgage loan.
            (3) Reverse mortgage.--The term ``reverse mortgage'' means 
        any mortgage loan--
                    (A) that is secured by a dwelling that is the 
                principal residence of the borrower and is designed 
                principally as a 1-family residence;
                    (B) under which payments are made to the borrower 
                based on the equity of the borrower in the residence;
                    (C) under which no repayment of principal and 
                interest is required until the entire indebtedness 
                under the loan becomes due and payable; and
                    (D) that provides that the borrower shall not be 
                liable for any remaining indebtedness resulting from 
                the failure of the security for the loan to cover the 
                entire indebtedness under the loan.

SEC. 6. PROCEEDS FROM REVERSE MORTGAGE LOANS NOT TREATED AS INCOME OR 
              RECEIPTS FOR MEANS-TESTED PROGRAMS.

    For purposes of any Federal program and any State or local program 
financed in whole or in part with Federal funds--
            (1) any payment under a reverse mortgage (as defined in 
        section 5) made to an individual shall not be taken into 
        account as income or receipts for purposes of determining the 
        eligibility, for the month in which such payment is made or any 
        month thereafter, of such individual or any other individual 
        for benefits or assistance, or the amount or extent of benefits 
        or assistance, under such a program, and
            (2) any unpaid amounts under such a mortgage shall be 
        treated as the borrower's equity in the residence and shall not 
        be treated as loan proceeds.