Oct 16

How to Deduct Long-Term Care Insurance Premiums From Your Income

Deducting Long-Term Care Insurance PremiumsTaxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.

Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured’s adjusted gross income. In tax year 2016, taxpayers 65 and older only needed medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older have the same 10 percent rule as everyone else.

The amount of┬álong-term care insurance┬ápremium that is deductible is based on the taxpayer’s age and changes each year. For the 2017 tax year, taxpayers who are 40 or younger can deduct only $410 a year, taxpayers between 40 and 50 can deduct $770, taxpayers between 50 and 60 can deduct $1,530, taxpayers between 60 and 70 can deduct $4,090, and taxpayers who are 70 or older can deduct up to $5,110 in premiums.

What this means is that taxpayers must total all of their medical expenses and compare them to their income. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000 as well $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. Frank can only deduct any medical expenses that exceed $3,000. The 2017 limit for deducting long-term care premiums is $4,090. That means Frank can only count $4,090 of his long-term care premiums. If he adds the $4,090 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $5,090. He can deduct $2,090 in medical expenses from his income.

Please contact our office to discuss your specific situation and long-term care planning strategies to help maximize your wealth, while providing for your long term needs.