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
$350
$360
41 through 50
$660
$680
51 through 60
$1,310
$1,360
61 through 70
$3,500
$3,640
71 and older
$4,370
$4,550
A special thanks to ElderLawAnswers for first publishing this information - www.elderlawanswers.com.
