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Long Term Care Tax Breaks

By Gerry W. Beyer

LTCiA long-term care insurance (LTCi) policy may help people reduce the amount they pay in taxes.  At the same time, it also provides valuable insurance coverage that can help someone stay in their home, protect their retirement, and ensure they will be self-sufficient. 

Furthermore, the new rules under the Pension Protection Act permit consumers to pay for LTCi through a tax-favored exchange from a non-qualified annuity directly into a stand-alone LTC policy without causing a taxable event.  Below are other benefits to LTCis:

  • Premiums Tax-Deductible.  Individual policyholders may be able to deduct a portion of the premium paid for a tax-qualified LTCi policy (known as an eligible premium).  This can be counted towards unreimbursed, itemized medical expenses. 
  • Tax Free Policy Benefits.  Benefits received under a tax-qualified reimbursement LTCi policy could be tax free; policies providing a per-diem can be received tax-free so long as they do not exceed the greater of actual qualified long-term care daily expenses or the IRS’s per day limitation.
  • Deductible Out of Pocket Expenses.  Typically, any LTC expenses the policyholder pays out-of-pocket may be claimed as a medical deduction on a federal income tax return.
  • States Offer Deductions.  A number of states currently offer tax deductions and/or credits for those who purchase qualified LTCi policies.

See David Hillelsohn, Tax Benefits for Long Term Care Insurance, The LTC Buzz, Apr. 15, 2015.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Posted in:
Disability Planning - Health Care, Estate Planning - Generally and Non-Probate Assets