Tax Advantages Of Having A Long Term Care/Home Health Care Policy

There are a lot of advantages to purchasing long-term care insurance. It helps people remain in their homes as long as possible, ensures parents won’t have to rely on their kids to take care of them, and provides protection for a retirement nest egg. But there’s another important advantage…the potential to save on federal and state income taxes.

LTCi Premiums May be Tax Deductible
Provided by Duaine Owings-Plan To Win Ins Agency

When it comes to the amount of tax savings, it all comes down to who you are.

Individual policyholders may be able to deduct a portion of the premium paid for a tax-qualified LTCi policy based on the eligible premium limits set annually by the federal government.

Business owners who use business dollars to purchase LTCi can experience significant tax savings based on the tax structure of the business:

• Self-employed business owners (sole proprietor, partnership, S Corporation, LLC) may deduct eligible premium paid for the owner, spouse and dependents and actual premium paid for employees
• Owner/employees of C Corporations may deduct actual premium for the owner/employee, spouse, dependents and employees

Policy Benefits May be Tax Free
Benefits received under a tax-qualified LTCi policy are intended to be tax-free as long as they do not exceed the greater of actual qualified long-term care daily expenses or the IRS’s per day limitation, which is $290 in 2010 and $300 in 2011.

Out-of-Pocket LTC Expenses May be Tax Deductible
Generally, any LTC expenses the policyholder pays out-of-pocket may be claimed as a medical deduction on a federal income tax return. The only exception is payment for home care provided by a family member who is not a licensed health-care professional.

Some States Offer Tax Deductions, Too
Currently 29 states, plus the District of Columbia, offer tax deductions and/or credits for people who purchase qualified LTCi policies. And these state deductions and credits are in addition to those offered by the federal government.

Federal Guidelines for Eligible Premium
Individuals may claim the eligible premium amount, which is established annually by the federal government, as a medical expense as long as combined medical expenses exceed 7.5 percent of adjusted gross income and deductions are itemized on the federal income tax return.

If the policyholder is…	Eligible premium that can be deducted is…
	In 2010	In 2011
40 or younger	$330	$340
41 to 50	$620	$640
51 to 60	$1,230	$1,270
61 to 70	$3,290	$3,390
71 and older	$4,110	$4,240