Long-term Care Tax Deduction

Congress passed HIPPA as an incentive for people to take financial responsibility for their long-term care (not covered by Medicare of private health insurance). It generally provides for deductibility of qualified long-term care expenses, and excludes from taxable income your qualified long-term care reimbursements. Higher deduction for long term care premiums are geared to help seniors make payments. Let's see what this means.

You can add long-term care expenses, paid for both qualified long-term care services and premiums for qualified long-term care insurance policies to your medical expenses deduction on your Schedule A of your IRS form 1040 and thereby get a long term care tax deduction for medical expenses exceed 7.5% of adjusted gross income (if you meet the other limits explained below).

(Note that IRS has strict language for what constitutes qualified long term care expense and qualified long term care policies to get the tax deductions mentioned. But IRS has never said that expenses that are not qualified will not get the same benefits).

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services that are required by a chronically ill individual and provided through a plan of care prescribed by a licensed health practitioner.

Someone is chronically ill (i.e. needing long-term care) when within the last 12 months, a licensed health practitioner has certified him or her as unable to perform at least two of the ADLs (activities of daily living: eating, toileting, dressing, walking, transferring, bathing, and continence) without help for at least 90 days.

Qualified long-term care insurance contracts are those that provide only coverage of long-term care services. They must be guaranteed renewable and must not provide for a cash surrender value that can be paid, assigned, pledged, or borrowed. And lastly, it must not pay for expenses that would be reimbursed under Medicare, except as a secondary payer.

The amounts of these LTC premiums you can include in medical expenses are limited though. But they increase substantially with age. See the table for includible limits on LTC premiums. Note that these limits increase annually.

Age	Limit of LTC premiums includible in medical expense for LTC tax deduction 2012
40 or under	$350
41 to 50	$660
51 to 60	$1,310
61 to 70	$3,500
71 or over	$4,370

Your benefits from a qualified long term care policy are generally excludable from taxable income as long as they are used for qualified long-term care services (e.g. nursing home, home care, and personal care and maintenance services). Note that your medical deduction is only for that portion of medical expenses that exceed 7.5% of your adjusted gross income and only 5% of US tax returns qualify in one study we have seen.