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No one wants to need long-term care, whether at home or in a nursing facility. However, studies show that nearly 70% of all people now age 65 will eventually require long-term care to help with activities of daily living. ADLs include tasks like bathing, dressing, toileting, preparing food, mobility and eating. If long-term care becomes necessary, there are a number of tax matters to consider concerning the cost of long-term care and long-term care insurance.
Are Long-Term Care Premiums Tax Deductible?
If you were savvy enough to purchase a long-term care policy when you were relatively young and healthy, all or a portion of the premiums may be tax deductible. Rules regarding tax deductions are state-specific. In some states, the entire premium is deductible, while in others, only a portion is eligible for a tax deduction.
Qualified long-term care premiums, up to a limit determined by the IRS, can be included as medical expenses on Form 1040, Schedule A, Itemized Deductions, or in calculating the self-employed health insurance deduction.
Are Long-Term Care Medical Costs Tax Deductible?
For any medical deductions to be acceptable to the IRS, they must be prescribed by a licensed health care practitioner and be related to the person’s chronic condition. This is true regardless of where care is provided—at home, in an assisted living residence, or a skilled nursing care facility. Care may include rehabilitative or therapeutic treatment, personal care, or other qualifying services. If the main reason for being in an assisted living or nursing home is to receive medical care, the cost of room and board (food and lodging) may also be tax deductible.
Will Taxes Be Due on LTC Benefits?
Generally speaking, benefits payments received under qualified long-term care insurance policies are federal income tax-free. To be eligible for this tax treatment, policies must be guaranteed renewable and can’t have any cash surrender value. Money from the policy must not be available to be paid, assigned, pledged, or borrowed. Finally, the policy may not pay for or reimburse expenses reimbursed under Medicare.
All of these tax deductions become more valuable as one ages. Income drops for most people during retirement. At the same time, the likelihood of having higher medical expenses increases dramatically once you reach age 60.
What If You Don’t Have Long-Term Care Insurance?
In some cases, it is possible to purchase a life insurance policy with a Long-Term Care rider, known as a hybrid insurance policy. This allows a surviving spouse or family member to receive a partial or full death benefit, while part of the policy’s death benefit can be used to pay for long-term care. The death benefit will most likely be reduced if the policy’s LTC benefits are used. However, this is usually the point of purchasing the policy.
Planning for Long-Term Care
Think of planning for long-term care as another way to protect your family from one of life’s unpleasant realities. It’s a necessary task, and once completed, it will provide you and the family with peace of mind, knowing that you are ready for whatever the future may bring. Book a call with Vick Law, P.C. today to discuss how we can help you plan or navigate long-term care in you estate planning.
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