LTCI Tax-Deductibility Rules: Individual

Individuals

Tax-qualified LTCi premiums are considered a medical expense. For an individual who itemizes tax deductions, medical expenses are deductible  to the extent that they exceed 7.5% of the individual’s Adjusted Gross Income (AGI).  The amount of the LTCi premium treated as a medical  expense is limited to the eligible   LTCi premiums, as defined by Internal Revenue Code 213(d), based on the age of the insured individual.   That portion of the LTCi premium that exceeds the eligible LTCi premium is not included as a medical expense.

Individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves,  their spouse or any tax dependents (such as parents) as a personal medical expense.

The yearly maximum deductible amount for each individual depends on the insured’s  attained age at the close of the taxable year (see Table 1 for current limits). These deductible maximums are indexed and increase each year for inflation.

2012 Long Term Care Insurance Federal Tax Deductible Limits (Table 1)

Taxpayer’s Age At End of Tax Year – Deductible Limit
40 or less   $  350
More than 40 but not more than 50   $  660
More than 50 but not more than 60 $1,310
More than 60 but not more than 70 $3,500
More than 70 $4,370

Source: IRS Revenue Procedure: 2011-52

2011 Long Term Care Insurance Federal Tax Deductible Limits

Taxpayer’s Age At End of Tax Year – Deductible Limit
40 or less   $  340
More than 40 but not more than 50   $  640
More than 50 but not more than 60 $1,270
More than 60 but not more than 70 $3,390
More than 70 $4,240

Source: IRS Revenue Procedure: 2010-40

2010 Federal Tax Deductible Limits

Taxpayer’s Age At End of Tax Year – Deductible Limit
40 or less   $  330
More than 40 but not more than 50   $  620
More than 50 but not more than 60 $1,230
More than 60 but not more than 70 $3,290
More than 70 $4,110

Source: IRS Revenue Procedure: 2009-50

2009 Federal Tax Deductible Limits

Taxpayer’s Age At End of Tax Year – Deductible Limit
40 or less    $  320
More than 40 but not more than 50   $  600
More than 50 but not more than 60 $1,190
More than 60 but not more than 70 $3,180
More than 70 $3,980

Source: IRS Revenue Procedure: 2008-66

2008 Federal Tax Deductible Limits

Taxpayer’s Age At End of Tax Year – Deductible Limit
40 or less   $  310
More than 40 but not more than 50   $  580
More than 50 but not more than 60 $1,150
More than 60 but not more than 70 $3,080
More than 70 $3,850

Source: IRS Revenue Procedure: 2007-68

Example: A husband and wife ages 55 and 49 purchase policies. The Eligible amount that the husband can include toward reaching the 7.5% of the Adjusted Gross Income (AGI) threshold is $1,150. The wife (age 49) can apply $580. Note: In two years, when the wife will fall into the 51-to-61 threshold, the higher amounts for both will apply. And, these amounts are increased annually.

Planning Tip: Some LTC insurers offer “shared care” policies where two people share one pool of benefits. This may be used to maximize the eligible tax deductibility when there is a difference in ages between the spouses.

Tax Savings Tip: Long-term care insurance premiums may be paid from a Health Savings Account (HSA) up to the limits shown above.

Taxability of Benefits Received: Generally, benefits received from a tax-qualified LTCi policy that was purchased by an individual are non-taxable and therefore excluded from Adjusted Gross Income. Benefits paid under an indemnity policy are not taxed unless they exceed the higher of the cost of qualified long-term care or $300-per-day (the 2011 limit).  The 2012 limit is $310-per-day.

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