Save money on long term care insurance with premium deductions on your income tax return.
Long Term Care Insurance Premium Tax Deductibility
You may be able to deduct part of the premium for a tax-qualified long term care insurance policy from your taxes. A portion of tax-qualified long term care insurance premiums are considered a medical expense. Individuals who itemize tax deductions can deduct medical expenses to the extent that they exceed 7.5% of the individual’s Adjusted Gross Income (AGI). The amount of the long term care insurance premium treated as a medical expense is limited to the eligible premium limites defined by the Internal Revenue Code 213(d) based on one’s age.n The long term care insurance premium that exceeds the IRS limits is not included as a medical expense.
Individual taxpayers can treat the long term care insurance premiums paid 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. The IRS deductible maximums are indexed and increase each year for inflation.
Long Term Care Insurance 2011 Federal Tax Deductible Limits
Taxpayers Age Deductible Limit at End of Tax Year
| 40 or less |
$340
|
|---|---|
| 41 but not yet 51 |
$640
|
| 51 but not yet 61 |
$1270
|
| 61 but not yet 71 |
$3,390
|
| 71 or older |
$4,240
|
Long Term Care Expense Deductibility
Nursing home care can be itemized on your 1040 Schedule A, but only medical costs in excess of 7 1/2% of your adjusted gross income may be tax deductible.
NOTE: To be eligible for long-term care premium individual tax deductions, an individual must have a tax qualified policy and itemize his/her expenses on a form 1040 Schedule A.
Federal Tax Treatment of Benefits Paid By A Long Term Care Insurance Policy
Benefits paid from a tax-qualified long term care insurance policy are generally excluded from income. These benefits are treated as reimbursement for medical expenses incurred regardless of whether the long term care insurance policy reimburses actual expenses or pays benefits on a daily or monthly basis. Benefits paid on a daily or monthly basis are excluded from income except for amounts paid that exceed the policy holder’s actual long term care expenses.
