Tax Savings…Another Advantage of Owning LTCi

There are a lot of advantages to owning an LTCi policy. It helps people remain in their homes as long as possible, ensures parents won’t have to rely on their kids to take care of them, and provides protection for a retirement nest egg. But there’s another important advantage…the potential to save on federal and state income taxes. Here’s how:

LTCi premium may be tax deductible:
Each year, the federal government sets guidelines for tax deductibility of LTCi premium. Based on the policyholder’s age, a portion of the premium paid for an individual tax-qualified policy may be claimed as a medical expense. This is called eligible premium. Just keep in mind that the eligible premium amount cannot be deducted unless all combined medical expenses exceed 10 percent of adjusted gross income (7.5 percent for people age 65 and older) and deductions are itemized on the federal income tax return.

Policy benefits may be tax free:
Benefits received under a tax-qualified LTCi policy are intended to be tax-free as long as they do not exceed the greater of actual qualified long-term care daily expenses or the IRS’s per day limitation, which is $330 in 2015.

Out-of-pocket LTC expenses may be tax deductible:
Generally, any LTC expense paid out-of-pocket may be claimed as a medical deduction on a federal income tax return. The only exception is payment for home care provided by a family member who is not a licensed health-care professional.

Some states also offer tax deductions:
Currently a number of states offer tax deductions and/or credits for people who purchase tax-qualified LTCi policies. These state deductions and credits are in addition to those offered by the federal government.

Click here for Federal Guidelines for Eligible Premium and more.