Oct 28, 2015

IRS announces deductions for long-term care premiums in 2016

Taxpayers who purchase long-term care insurance policies that meet certain criteria may deduct a portion of the premiums from their federal taxes. In 2016, the deduction amount will increase. The deduction is pegged to attained age at the end of the year. Also, for individuals over the age of 65, premiums are deductible only to the extent to which they and all other unreimbursed medical expenses exceed 7.5% of adjusted gross income; for those under 65, to the extent that they exceed 10% of the adjusted gross income. (The rules are slightly different if you are self-employed; check with your accountant.) 

The 2016 deductions are as follows:
  • Age 40 or less: $390
  • More than 40, not more than 50 years of age:  $730
  • More than 50, but not more than 60 years of age: $1,460
  • More than 60, but not more tan 70 years of age: $3,900
  • Over 70 years of age: $4,870
These tax advantages are available to individuals with qualifying policies. To be considered qualified, the policy:
  • If issued after Jan. 1, 1997 must be in compliance with the regulations established by the National Association of Insurance Commissioners, and offer inflation and non-forfeiture 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. 
  • If purchased before Jan. 1, 1997, the policy is 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. Read more about qualified policies here.
For more information on long-term care policies that qualify and related issues, see IRS Publication 502.

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