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Save Money on Your Taxes by Deducting Your Long-Term Care Premiums!
Taxpayers with long-term care insurance policies can deduct some of their premiums from their income. Whether you can use the deduction requires comparing your medical expenses to your income in a complicated formula.
Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured's adjusted gross income. In tax year 2016, taxpayers 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017, taxpayers 65 and older will have the same 10 percent rule as everyone else.
The amount of long-term care insurance premium that is deductible is based on the taxpayer's age and changes each year. For the 2016 tax year, taxpayers who are 40 or younger can deduct only $390 a year, taxpayers between 40 and 50 can deduct $730, taxpayers between 50 and 60 can deduct $1460, taxpayers between 60 and 70 can deduct $3,900, and taxpayers who are 70 or older can deduct up to $4,870 in premiums.
What this means is that taxpayers must total all of their medical expenses and compare them to their income. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000 as well $1,000 in other medical expenses. Ten percent of $30,000 is $3,000. Frank can only deduct any medical expenses that exceed $3,000. The 2016 limit for deducting long-term care premiums is $3,900. That means Frank can only count $3,900 of his long-term care premiums. If he adds the $3,900 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $4,900. He can deduct $1,900 in medical expenses from his income.
If Frank is 70 in 2016, the calculation changes because his medical expenses only need to exceed 7.5 percent of his income, which would be $2,250. The amount of premiums he can deduct is also increased because of his age--he can deduct up to $4,870 in premiums. Subtracting the income limit from his medical expenses ($4,870 in long-term care premiums and $1,000 in other expenses), Frank can deduct $3,620 in medical expenses from his income. In 2017, Frank will only be able to deduct medical expenses that exceeded 10 percent of his income, so the amount he can deduct will go down.
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