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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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 RE-
TIREMENT COMMUNITY.
(a) IN GENERAL.—Section 1034 of the Internal Rev-
enue Code of 1986 (relating to rollover of gain of sale of
principal residence) is amended by redesignating sub-
section (l) as subsection (m) and by inserting after sub-
section (k) the following new subsection:
‘‘(l) NONRECOGNITION OF GAIN IF NEW RESIDENCE
IS QUALIFIED CONTINUING CARE RETIREMENT COMMU-
NITY.—
‘‘(1) IN GENERAL.—Gross income shall not in-
clude 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 res-
idence 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 commu-
nity.
‘‘(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 re-
tirement community, the amount excluded from
gross income under paragraph (1) shall be in-
cluded in gross income for the taxable year in
which such cessation occurs.
‘‘(B) EXCEPTIONS.—The amount includ-
ible in gross income under subparagraph (A)
shall be reduced by the amount paid by the tax-
payer (during the 6-month period after the date
of cessation)—
‘‘(i) to a qualified continuing care re-
tirement community in order for the tax-
payer or his spouse to reside in such com-
munity (but only if the community be-
comes the principal residence of the tax-
payer or his spouse during such period), or
‘‘(ii) for qualified long-term care ex-
penses (as defined in section 408(d)(8)) of
the taxpayer or his spouse.
‘‘(4) SPECIAL RULES FOR MARRIED INDIVID-
UALS.—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 re-
spect to each spouse.
‘‘(5) QUALIFIED
CONTINUING
CARE
RETIRE-
MENT
COMMUNITY.—For purposes of this sub-
section, the term ‘qualified continuing care retire-
ment 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 
RETIRE-
MENT PLANS FOR LONG-TERM CARE.
(a) IN GENERAL.—Subsection (d) of section 408 of
the Internal Revenue Code of 1986 (relating to tax treat-
ment 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 at-
tained age 591⁄2 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
591⁄2 on or before the date of the distribu-
tion.
‘‘(B) QUALIFIED
LONG-TERM
CARE
EX-
PENSES.—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 INSUR-
ANCE POLICY.—For purposes of subparagraph
(B)—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the term ‘qualified long-term care in-
surance 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 proce-
dures similar to the procedures prescribed
in section 1882 of the Social Security Act
(42 U.S.C. 1385ss) used in the certifi-
cation of medicare supplemental policies
(as defined in subsection (g)(1) of such
section)) to be advertised, marketed, of-
fered, or designed to provide coverage—
‘‘(I) for not less than 12 consecu-
tive months for each covered person,
‘‘(II) on an expense incurred, in-
demnity, or prepaid basis,
‘‘(III) for 1 or more medically
necessary, diagnostic services, preven-
tive services, therapeutic services, re-
habilitation 
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
EX-
CLUDED.—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 cov-
erage.
‘‘(III) Basic medical-surgical ex-
pense coverage.
‘‘(IV) Hospital confinement in-
demnity coverage.
‘‘(V) Major medical expense cov-
erage.
‘‘(VI) Disability income protec-
tion coverage.
‘‘(VII) Accident only coverage.
‘‘(VIII) Specified disease cov-
erage.
‘‘(IX) Specified accident cov-
erage.
‘‘(X) Limited benefit health cov-
erage.
‘‘(iii) QUALIFIED
ISSUER.—For pur-
poses of clause (i), the term ‘qualified is-
suer’ means any of the following:
‘‘(I) Private insurance company.
‘‘(II) Fraternal benefit society.
‘‘(III) Nonprofit health corpora-
tion.
‘‘(IV) Nonprofit hospital corpora-
tion.
‘‘(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 sub-
section (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 ac-
count described in clause (i) is used other
than to pay qualified long-term care ex-
penses (as so defined) for the benefit of
the taxpayer or the spouse of the tax-
payer—
‘‘(I) such amount shall be includ-
ible 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 cer-
tain 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 polit-
ical subdivision of a State, is secured by any lien on
or interest in the property.
(2) MORTGAGE LOAN LAW.—The term ‘‘mort-
gage 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 indebt-
edness under the loan becomes due and pay-
able; and
(D) that provides that the borrower shall
not be liable for any remaining indebtedness re-
sulting 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 pur-
poses of determining the eligibility, for the month in
which such payment is made or any month there-
after, 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 resi-
dence and shall not be treated as loan proceeds.
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