I

103D CONGRESS

2D SESSION H. R. 5162

To amend the Internal Revenue Code of 1986 to improve long-term care

access for elderly Americans.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 4, 1994

Mr. DREIER introduced the following bill; which was referred jointly to the

Committees on Ways and Means, Banking, Finance and Urban Affairs,

and Government Operations

A BILL

To amend the Internal Revenue Code of 1986 to improve

long-term care access for elderly Americans.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Long-Term Care Act

5 of 1994’’.
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1 SEC. 2. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL

2 RESIDENCE TO EXTENT PROCEEDS USED

3 FOR ENTRANCE INTO CONTINUING CARE RE4 TIREMENT COMMUNITY.

5 (a) IN GENERAL.—Section 1034 of the Internal Rev6 enue Code of 1986 (relating to rollover of gain of sale of

7 principal residence) is amended by redesignating sub8 section (l) as subsection (m) and by inserting after sub9 section (k) the following new subsection:

10 ‘‘(l) NONRECOGNITION OF GAIN IF NEW RESIDENCE

11 IS QUALIFIED CONTINUING CARE RETIREMENT COMMU12 NITY.—

13 ‘‘(1) IN GENERAL.—Gross income shall not in14 clude gain from the sale of the principal residence

15 of the taxpayer if—

16 ‘‘(A) the taxpayer attained age 55 before

17 the date of such sale, and

18 ‘‘(B) within the 2-year period beginning on

19 such date, the taxpayer has as his principal res20 idence a qualified continuing care retirement

21 community.

22 ‘‘(2) LIMITATION.—The amount excluded from

23 gross income under paragraph (1) shall not exceed

24 the amount paid by the taxpayer during such 2-year

25 period to such retirement community in order for
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1 the taxpayer or his spouse to reside in such commu2 nity.

3 ‘‘(3) RECAPTURE IN CERTAIN CASES.—

4 ‘‘(A) IN GENERAL.—If the taxpayer ceases

5 to have as his principal residence (other than by

6 reason of death) a qualified continuing care re7 tirement community, the amount excluded from

8 gross income under paragraph (1) shall be in9 cluded in gross income for the taxable year in

10 which such cessation occurs.

11 ‘‘(B) EXCEPTIONS.—The amount includ12 ible in gross income under subparagraph (A)

13 shall be reduced by the amount paid by the tax14 payer (during the 6-month period after the date

15 of cessation)—

16 ‘‘(i) to a qualified continuing care re17 tirement community in order for the tax18 payer or his spouse to reside in such com19 munity (but only if the community be20 comes the principal residence of the tax21 payer or his spouse during such period), or

22 ‘‘(ii) for qualified long-term care ex23 penses (as defined in section 408(d)(8)) of

24 the taxpayer or his spouse.
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1 ‘‘(4) SPECIAL RULES FOR MARRIED INDIVID2 UALS.—In the case of a husband and wife who file

3 a joint return for the taxable year which includes the

4 date of the sale of the old residence—

5 ‘‘(A) the age requirement of paragraph

6 (1)(A) shall be treated as met if either spouse

7 meets such requirement, and

8 ‘‘(B) paragraph (3) shall be applied by

9 taking into account one-half of the gain with re10 spect to each spouse.

11 ‘‘(5) QUALIFIED CONTINUING CARE RETIRE12 MENT COMMUNITY.—For purposes of this sub13 section, the term ‘qualified continuing care retire14 ment community’ has the meaning given such term

15 by section 7872(g).’’

16 (b) EFFECTIVE DATE.—The amendments made by

17 this section shall apply to old residences sold after the date

18 of the enactment of this Act.

19 SEC. 3. EXCLUSION FROM GROSS INCOME FOR AMOUNTS

20 WITHDRAWN FROM INDIVIDUAL RETIRE21 MENT PLANS FOR LONG-TERM CARE.

22 (a) IN GENERAL.—Subsection (d) of section 408 of

23 the Internal Revenue Code of 1986 (relating to tax treat24 ment of distributions from individual retirement plans) is
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1 amended by adding at the end thereof the following new

2 paragraph:

3 ‘‘(8) DISTRIBUTIONS FOR QUALIFIED LONG4 TERM CARE EXPENSES.—

5 ‘‘(A) IN GENERAL.—No amount (which

6 but for this paragraph would be includible in

7 the gross income of the payee or distributee

8 under paragraph (1)) shall be included in gross

9 income during the taxable year if—

10 ‘‘(i) the payee or distributee has attained age 591 11 ⁄2 on or before the date of

12 the distribution, and

13 ‘‘(ii) the distribution is used during

14 such year to pay qualified long-term care

15 expenses for the benefit of the payee or

16 distributee or the spouse of the payee or

17 distributee if such spouse has attained age

591 18 ⁄2 on or before the date of the distribu19 tion.

20 ‘‘(B) QUALIFIED LONG-TERM CARE EX21 PENSES.—For purposes of subparagraph (A),

22 the term ‘qualified long-term care expenses’

23 means any amount paid—

24 ‘‘(i) as premiums for any qualified

25 long-term care insurance policy, or
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1 ‘‘(ii) for services of a type for which

2 coverage may be provided under a qualified

3 long-term care insurance policy.

4 ‘‘(C) QUALIFIED LONG-TERM CARE INSUR5 ANCE POLICY.—For purposes of subparagraph

6 (B)—

7 ‘‘(i) IN GENERAL.—Subject to clause

8 (ii), the term ‘qualified long-term care in9 surance policy’ means an insurance policy

10 or rider, issued by a qualified issuer, and

11 certified by the Secretary of Health and

12 Human Services (in accordance with proce13 dures similar to the procedures prescribed

14 in section 1882 of the Social Security Act

15 (42 U.S.C. 1385ss) used in the certifi16 cation of medicare supplemental policies

17 (as defined in subsection (g)(1) of such

18 section)) to be advertised, marketed, of19 fered, or designed to provide coverage—

20 ‘‘(I) for not less than 12 consecu21 tive months for each covered person,

22 ‘‘(II) on an expense incurred, in23 demnity, or prepaid basis,

24 ‘‘(III) for 1 or more medically

25 necessary, diagnostic services, preven-
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1 tive services, therapeutic services, re2 habilitation services, maintenance

3 services, personal care services, or

4 continuing care services, and

5 ‘‘(IV) provided in a setting other

6 than an acute care unit of a hospital.

7 ‘‘(ii) COVERAGE SPECIFICALLY EX8 CLUDED.—Such term does not include any

9 insurance policy or rider which is offered

10 primarily to provide any combination of

11 the following kinds of coverage:

12 ‘‘(I) Basic Medicare supplement

13 coverage.

14 ‘‘(II) Basic hospital expense cov15 erage.

16 ‘‘(III) Basic medical-surgical ex17 pense coverage.

18 ‘‘(IV) Hospital confinement in19 demnity coverage.

20 ‘‘(V) Major medical expense cov21 erage.

22 ‘‘(VI) Disability income protec23 tion coverage.

24 ‘‘(VII) Accident only coverage.
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1 ‘‘(VIII) Specified disease cov2 erage.

3 ‘‘(IX) Specified accident cov4 erage.

5 ‘‘(X) Limited benefit health cov6 erage.

7 ‘‘(iii) QUALIFIED ISSUER.—For pur8 poses of clause (i), the term ‘qualified is9 suer’ means any of the following:

10 ‘‘(I) Private insurance company.

11 ‘‘(II) Fraternal benefit society.

12 ‘‘(III) Nonprofit health corpora13 tion.

14 ‘‘(IV) Nonprofit hospital corpora15 tion.

16 ‘‘(V) Nonprofit medical service

17 corporation.

18 ‘‘(VI) Prepaid health plan.’’

19 (b) EFFECTIVE DATE.—The amendment made by

20 subsection (a) shall apply to distributions after the date

21 of the enactment of this Act in taxable years ending after

22 such date.
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1 SEC. 4. INCREASE IN EXCLUSION OF GAIN ON SALE OF

2 PRINCIPAL RESIDENCE BY INDIVIDUALS

3 WHO HAVE ATTAINED AGE 55 FOR AMOUNTS

4 SET ASIDE FOR LONG-TERM CARE.

5 (a) IN GENERAL.—Paragraph (1) of section 121(b)

6 of the Internal Revenue Code of 1986 (relating to one7 time exclusion of gain from sale of principal residence by

8 individual who has attained age 55) is amended to read

9 as follows:

10 ‘‘(1) DOLLAR LIMITATION.—

11 ‘‘(A) IN GENERAL.—The amount of the

12 gain excluded from gross income under sub13 section (a) shall not exceed $125,000 ($62,500

14 in the case of a separate return by a married

15 individual).

16 ‘‘(B) EXCEPTION FOR AMOUNTS SET

17 ASIDE FOR LONG-TERM CARE.—

18 ‘‘(i) IN GENERAL.—The dollar amount

19 applicable under subparagraph (A) shall be

20 increased by the amount set aside by the

21 taxpayer (during the taxable year in which

22 the sale or exchange occurs) in a separate

23 account the principal and earnings on

24 which are to be used by the taxpayer only

25 to pay qualified long-term care expenses

26 (as defined in section 408(d)(8)) for the
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1 benefit of the taxpayer or the spouse of the

2 taxpayer.

3 ‘‘(ii) TAX ON AMOUNTS NOT USED

4 FOR LONG-TERM CARE EXPENSES.—If any

5 amount paid or distributed from an ac6 count described in clause (i) is used other

7 than to pay qualified long-term care ex8 penses (as so defined) for the benefit of

9 the taxpayer or the spouse of the tax10 payer—

11 ‘‘(I) such amount shall be includ12 ible in gross income for the taxable

13 year in which paid or distributed, and

14 ‘‘(II) the taxpayer’s tax imposed

15 by this chapter for such taxable year

16 shall be increased by an amount equal

17 to 10 percent of such amount.’’

18 (b) EFFECTIVE DATE.—The amendment made by

19 subsection (a) shall apply to sales and exchanges after the

20 date of the enactment of this Act in taxable years ending

21 after such date.

22 SEC. 5. FEDERAL PREEMPTION RELATING TO REVERSE

23 MORTGAGE LOANS.

24 (a) LAWS RELATING GENERALLY TO MORTGAGES.—

25 No State or political subdivision of a State may establish,
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1 continue in effect, or enforce any mortgage loan law, as

2 such law applies to any reverse mortgage loan, unless the

3 mortgage loan law expressly applies to reverse mortgage

4 loans (or to certain types of such loans) or on its face

5 evidences the existence of reverse mortgage loans (or cer6 tain types of such loans).

7 (b) SAVINGS PROVISION.—Subsection (a) may not be

8 construed—

9 (1) to annul, alter, or affect any mortgage loan

10 law as such law applies to any mortgage loan that

11 is not a reverse mortgage loan; or

12 (2) to limit the authority of any State or any

13 political subdivision of a State to establish, continue

14 in effect, or enforce any provision of law expressly

15 applicable to reverse mortgage loans (or certain

16 types of such loans).

17 (c) DEFINITIONS.—For purposes of this section, the

18 following definitions shall apply:

19 (1) MORTGAGE LOAN.—The term ‘‘mortgage

20 loan’’ means any loan for the unpaid purchase price

21 of real property or advances on real property that,

22 pursuant to the laws of the applicable State or polit23 ical subdivision of a State, is secured by any lien on

24 or interest in the property.
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1 (2) MORTGAGE LOAN LAW.—The term ‘‘mort2 gage loan law’’ means any law that applies to any

3 mortgage loan or regulates, limits, authorizes, or

4 otherwise affects any mortgage loan.

5 (3) REVERSE MORTGAGE.—The term ‘‘reverse

6 mortgage’’ means any mortgage loan—

7 (A) that is secured by a dwelling that is

8 the principal residence of the borrower and is

9 designed principally as a 1-family residence;

10 (B) under which payments are made to the

11 borrower based on the equity of the borrower in

12 the residence;

13 (C) under which no repayment of principal

14 and interest is required until the entire indebt15 edness under the loan becomes due and pay16 able; and

17 (D) that provides that the borrower shall

18 not be liable for any remaining indebtedness re19 sulting from the failure of the security for the

20 loan to cover the entire indebtedness under the

21 loan.
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1 SEC. 6. PROCEEDS FROM REVERSE MORTGAGE LOANS NOT

2 TREATED AS INCOME OR RECEIPTS FOR

3 MEANS-TESTED PROGRAMS.

4 For purposes of any Federal program and any State

5 or local program financed in whole or in part with Federal

6 funds—

7 (1) any payment under a reverse mortgage (as

8 defined in section 5) made to an individual shall not

9 be taken into account as income or receipts for pur10 poses of determining the eligibility, for the month in

11 which such payment is made or any month there12 after, of such individual or any other individual for

13 benefits or assistance, or the amount or extent of

14 benefits or assistance, under such a program, and

15 (2) any unpaid amounts under such a mortgage

16 shall be treated as the borrower’s equity in the resi17 dence and shall not be treated as loan proceeds.

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