Reducing Your Long-Term Care Insurance Expense Through Tax Deduction
Today, because people are living so much longer than ever before, there is has been a greatly increased need for long-term care services. Even if someone doesn’t need skilled nursing home care – which, on average in 2014, could cost upwards of $87,0001 – there can still be care services required for help with basic daily living activities such as dressing and bathing.
One way that has proven to help in paying for the required caregiving that an individual needs – yet without reducing assets – is long-term care insurance.
Unfortunately, though, this type of coverage can also prove to be expensive – especially for those who do not purchase it during their younger years. The good news is that Uncle Sam has provided a way to still purchase long-term care insurance and potentially reduce the expense.
Tax Deductions for Individual Long-Term Care Insurance Premiums
Most of the long term care insurance policies that are available today are considered “tax qualified.” What this means is that the premiums on these plans may qualify as an itemized deduction – up to a maximum amount – depending on your attained age prior to the close of the taxable year, as well as your other medical expenses.
For example, for the 2015 tax year, what a policy holder who is age 64 and younger pays in long-term care insurance premium could be tax deductible, provided that the amount exceeds 10% of your adjusted gross income amount. For those who are age 65 and over, the threshold is 7.5% of your adjusted gross income (through the tax year 2016).
There is, however, a maximum limit on how much of the premium may be deducted, depending on your age. The 2015 deductible limits for eligible long-term care premiums that are includable as “medical care” are as follows:
Attained Age Before Close of Taxable Year 2015
40 or under – $380
More than 40 but not more than 50 – $710
More than 50 but not more than 60 – $1,430
More than 60 but not more than 70 – $3,800
Over 70 – $4,750
Source: IRS Revenue Procedure 2014-61
Additional Tax Related Advantages of Owning Individual Long-Term Care Coverage
In addition, there are other benefits to owning individual long-term care insurance coverage when it comes to receiving the benefits. This is because the benefits that are received from a tax qualified long-term care policy do not have to be included in your income.
Therefore, if you own a long-term care policy that pays out $5,000 per month in benefits, this can essentially provide you with $60,000 per year in care funds that are received by you tax-free.
Taking the Next Step to Protecting Assets from Long-Term Care Expenses
There are many ways to protect your savings from the high – and growing – cost of long-term care. Doing so can help you to keep your retirement funds where they belong, and not have to deplete your hard-earned assets.
We work with more than 40 different insurance carriers – so we can help you to find the long-term care insurance plan that works the best for you. Oftentimes, additional premium discounts may be given when spouses apply for coverage together and / or for those who are in exceptional health. Give us a call and we’ll find the plan that works to keep your savings intact.
Genworth 2014 Cost of Care Survey – Annual Cost of Private Room in a Skilled Nursing Home Facility.