2011 and 2012 Deductions and Exclusions for Your Long Term Care Insurance
by Shane Flait ©2012

HIPPA provides for deductibility of qualified long term care (LTC) expenses and excludes from taxable income your qualified long term care benefits. This is provided to you as an incentive to take financial responsibility for your long term care. As you age, you get higher deduction limits for LTC premiums payments you make. This helps retirees. Let's see what the tax advantages are.

It’s generally a rule of taxation that when you’re able to deduct insurance premiums, you’re generally taxed on their benefits – i.e. their payout when you eventually receive them.  That’s the case for long term care insurance. But there are limits to the deductions you can take depending on your age and there’s an amount you can exempt from income for LTC benefits received. I’ve tabulated both of these below for 2011 and 2012.

Long Term Care Insurance Deductions From Income:

You can add long term care expenses paid for both qualified long-term care services and premiums you pay for qualified long-term care insurance products to your medical expense deduction on your Schedule A of your IRS form 1040.   

Remember, though, that medical expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income (AGI). The amount of the LTC premium you paid during the year that you can treat as a medical expense is limited and a function of your age. That portion of your LTC premium payments that exceeds that limit cannot be included as a medical expense.

The IRS’s definition of qualified long-term care services are those necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided through a plan of care prescribed by a licensed health practitioner. 

Someone’s chronically ill (i.e. needing long term care) when, within the last 12 months, a licensed health practitioner has certified him or her as unable to perform at least 2 of the ADLs (activities of daily living – dressing, eating, toileting, transferring, bathing, and continence) without help for at least 90 days.

Qualified Long-Term Care insurance contracts are those that provide only coverage of long-term care services. They must be guaranteed renewable and must not provide for a cash surrender value that can be paid, assigned, pledged or borrowed. And lastly it must not pay for expenses that would be reimbursed under Medicare, except as a secondary payer.

 LTC Benefit Exclusions From Income

Your LTC benefits are generally excludable from taxable income as long as they're used for qualified long term care services (e.g. nursing home, home care, personal care and maintenance services). The excludable amount for any period is figured by subtracting any reimbursement received (through insurance or otherwise) for the cost of qualified long-term care services during the period from the larger of the following amounts:

·         The cost of qualified long-term care services during the period.

·         The dollar amount for the period (300 per day for any period in 2011).

 Below are the LTC deductions and benefit limits for 2011 and 2012

 The tables below map out the deductions and exemptions for 2011 and 2012.

 

Long Term Care (LTC) Insurance Tax Advantages
LTC premium deduction limits (2011)
Age	Includible in medical expense deductions (2011)
40 or under	$340
41 to 50	$640
51 to 60	$1,270
61 to 70	$3,390
71 or over	$4,240
LTC Insurance benefits exclusions
2011 LTC insurance Benefits Exclusion from Income:	$300 per day

 

Long Term Care (LTC) Insurance Tax Advantages
LTC premium deduction limits (2012)
Age	Includible in medical expense deductions (2012)
40 or under	$350
41 to 50	$660
51 to 60	$1,310
61 to 70	$3,500
71 or over	$4,370
LTC Insurance benefits exclusions
2012 LTC insurance Benefits Exclusion from Income:	$310 per day

 

 

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Shane Flait is a writer and educator. Get more info at www.EasyRetirementKnowHow.com