Tax-qualified LTCi premiums are considered a medical expense and can be deducted to the extent they exceed 7.5% of the individuals AGI. The amounts eligible are listed below. Individual taxpayers can treat premiums paid for tax-qualified LTCi for themselves, a spouse and tax dependents (e.g. parents) as a personal medical expense.
2012 Federal Tax Deductibles Limits
Taxpayer’s Age at End of Tax Year
40 or less $ 335
Above 40 but no more than 50 $ 660
Above 50 but no more than 60 $ 1,310
Above 60 but no more than 70 $ 3,500
Above age 70 $ 4,370
- Self Employed: Same as individual limits.
- Partnerships, members of an LLC that is taxed as a partnership and shareholder/employees of a Sub S corporation who own more than 2% of the Corporation are taxed as self-employed individuals. Premiums are part of AGI but may deduct up to 100% of eligible LTCi age based limits without regard to the 7.5% AGI requirement. Other tax deduction results will occur with different tax methods used by sole shareholder/employee in an S Corporation.
- C Corporations: LTCi policies purchased for employees, their spouses or dependents are generally fully deductible. If a higher deduction is needed, (plus fewer years to pay) a limited pay policy (i.e. 10 years) could be considered.
Gift Tax Exclusion: In addition to the current $13,000 gift tax exclusion per donee, the donor can pay for medical expenses of the donee (IRC Sec. 2503(e). Qualified LTC insurance premiums are considered medical expenses and deductible up to the age-based limits as shown above.
Long Term Care insurance will not solve all financial care-giving situations but what it will do is help to preserve financial assets and one’s independence, increase care-giving options, and reduce stress and personal finances that family or friends incur.
Individual States may also have a deduction or credit for LTCi premiums. Also consult with a professional tax advisor for tax questions about personal or your business deductions.
We do not provided legal or tax advice. Consult a qualified provider in these matters.
