The IRS Increases Deduction Limits for Long Term Care Insurance

A couple with tax-qualified long-term care insurance coverage could enjoy a maximum $9,500 tax deduction in 2015. The potential tax deduction increases to $9,740 in 2016 according to a just-released IRS revenue procedure. “The potential tax deductibility of tax-qualified long-term care insurance costs is one of the most overlooked benefits, especially for older retired Americans,” states Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI).

The IRS permits deductions for long-term care insurance policies that meet certain eligibility standards. Life insurance policies that offer a long-term care benefit are generally not eligible for a tax deduction. The allowable maximum deduction is based on the policyholder’s age before the end of the taxable year. A couple ages 64 and 66 could be eligible to deduct $3,800 each from their 2015 taxes. The deduction may be possible even if they paid for the policy now before the end of the year.

For 2016, the IRS approved a 2.5% increase. “This is a positive indication of the government’s commitment to encourage more individuals to do some planning. The government recently announced that 60 million people on Social Security will not receive any cost-of-living increase in their 2016 benefits,” he said. Tax-deductible limits for long term care insurance premiums vary by age. The 2015 limit for someone age 55 is $1,430 in 2015 (increasing to $1,460 in 2016).

Slome notes, “You likely will not qualify for a tax deduction while you are still working but you could benefit when you are retired. After retirement, your income is low; the age-based tax deductible maximum limit for long term care insurance is high; and your ability to deduct costs is more likely and much more valuable.”
Slome contends that few individuals are aware of the tax deductibility of long-term care insurance premiums, “We find most people are completely unaware of the opportunity and rules that apply for individuals and self-employed individuals.”

Certain owners of businesses are able to take advantage of special rules that apply to tax qualified long-term care insurance. A small business, established as a C-corporation may be able to deduct the full cost of long term care insurance premiums, even if the cost is above the stated yearly tax limits. Plus, the company can designate who is covered even when the employer pays the full cost.

While deductions may not apply for individuals who are still working, they often can be taken during retirement when income stops and medical expenses often occur. The 2015 and 2016 deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows

Last Updated 05/05/2021

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