The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2012 taxes as a result of buying long-term care insurance. Premiums for “qualified” long-term care insurance policies (see explanation below) are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 7.5 percent of the insured’s adjusted gross income.
These premiums – what the policyholder pays the insurance company to keep the policy in force – are deductible for the taxpayer, his or her spouse and other dependents. Note that if you are self-employed, the tax-deductibility rules are a little different: You can take the amount of the premium as a deduction as long as you made a net profit; your medical expenses do not have to exceed 7.5 percent of your income. However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for 2012. Any premium amounts for the year above these limits are not considered to be a medical expense.
Attained age before the close of the taxable year
|
Maximum deduction for year
|
40 or less | $350.00 |
More than 40 but not more than 50 | $660.00 |
More than 50 but not more than 60 | $1,310.00 |
More than 60 but not more than 70 | $3,500.00 |
More than 70 | $4,370.00 |
What Is a “Qualified” Policy?
To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “non-forfeiture” protection, although the consumer can choose not to purchase these features. Policies purchased before January 1, 1997, will be grandfathered and treated as “qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold. For more on the “qualified” definition, click here. The Georgetown University Long-Term Care Financing Project has a two-page fact sheet, “Tax Code Treatment of Long-Term Care and Long-Term Care Insurance.” You can download it here in PDF format: http://ltc.georgetown.edu/pdfs/taxcode.pdf
Glenn Matecun is a Michigan attorney focusing on Estate Planning and Elder Law. He helps families avoid the devasting financial effects of nursing homes and other long-term care communities. For more information, visit www.MichiganEstatePlans.com or www.MTOlaw.com