The Internal Revenue Code categorizes LTCI contracts as either qualified or non-qualified. In order to be qualified and receive favorable federal income tax treatment of premiums, a LTCI contract must meet the following criteria:
It can only cover qualified long-term care services, such as: diagnostic, preventative, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance of personal care services.
A licensed healthcare practitioner must certify that the insured cannot perform at least two activities of daily living without substantial assistance, or requires substantial supervision for safety reasons as a result of a cognitive impairment (i.e. Alzheimer's)
It generally does not cover any expenses paid by Medicare.
It is guaranteed renewable and does not provide for a cash surrender value.
It must offer certain consumer-protection provisions.
Assuming the plan is qualified, taxpayers who itemize their deductions may deduct the lesser of the premiums paid or the amount reflected in the following Age-Based Deduction Chart. For LTCI premiums to be deductible, the taxpayer's unreimbursed medical expenses must exceed 7.5% of his or her adjusted gross income. As for business owners, such as sole proprietors, partners, and shareholder-
Age-Based LTCI Premium Deductions
Age at End of Taxable Year
Maximum Deduction for 2012
Maximum Deduction for 2013
40 or less
41 through 50
51 through 60
61 through 70
71 and older
A special thanks to ElderLawAnswers for first publishing this information - www.elderlawanswers.com.