Nov 14, 2013

IRS increases deductions for long-term care insurance premiums in 2014

Today's seniors can expect to live longer than their counterparts a generation before. But there is no guarantee that all those extra years will be healthy ones. Many seniors worry about being wiped out financially if they ever need long-term nursing care, which is staggeringly expensive. One way to eliminate the worry is to purchase long-term care insurance. It, too, can be expensive, and not always easy to obtain. But the good news is that if you have a qualified policy, Uncle Sam permits you to take a deduction for the premiums when you file your income tax. 

Starting in 2014, taxpayers will be able to increase the amount they deduct on their federal taxes for long-term care premiums. To qualify for the deduction, certain conditions must be met: 

First, the policy must be "qualified." If issued after Jan. 1, 1997, the policy must be in compliance with the regulations established by the National Association of Insurance Commissioners, and offer inflation and nonforfeiture protection (whether or not the insured party chooses those options).  Additionally, the policy must contain certain 'triggers' under which benefits can be paid. The insured individual may be able to collect benefits only when he/she requires assistance with two of six "activities of daily living" for at least 90 days; or when a physician certifies that there is cognitive impairment to warrant supervision for safety purposes. Any policy purchased before Jan. 1, 1997 will be grandfathered in and treated as qualified so long as it has been approved by the insurance commissioner of the state in which it was sold.

Second, premiums, plus unreimbursed medical expenses, may not exceed 10% of gross income for those under age 65; for those over 65, the threshold will remain at 7.5% through the year 2016. (The rules are slightly different if you're self-employed; check with your accountant.)Here are the IRS' deductibility guidelines for 2014. The figures are based on the attained age of the taxpayer before the end of the taxable year:

40 years or younger: $370 (was $360)
41 - 50: $700 (was $680)
51 - 60: $1400(was $1360)
61 - 70: $3720 (was $3640)
71 and older: $4660 (was $4550)

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