Q. Tax day is coming soon and I wonder if I can claim a tax deduction for my Long Term Care Insurance Premiums paid during this past year?
A. Depending upon your income and age, the answer may very well be ‘yes’, at least as to a portion of your premiums paid. Here’s the way it works:
AGI Threshold: 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 your Adjusted Gross Income. This is sometimes referred to as the “AGI Threshold”. However, in tax year 2016, taxpayers aged 65 and older only need medical expenses to exceed 7.5 percent of their income, but in 2017 they will have the same 10 percent threshold rule as everyone else. If medical expenses do not exceed these AGI Thresholds, then they are not deductible.
Age Determines Extent of Deduction That Can Be Counted: The amount of long-term care insurance premiums that are countable toward your AGI Threshold is based upon your age, and the amount changes each year. For the 2016 tax year, taxpayers who are aged 40 or younger can count toward their deduction only $390 a year; taxpayers between 40 and 50 can count $730; taxpayers between 50 and 60 can count $1,460; taxpayers between 60 and 70 can count $3,900; and taxpayers who are 70 or older can count up to $4,870 in LTC premiums toward their AGI Threshold.
What this means is that taxpayers must total all of their medical and LTC Premium expenses and compare them to their incomes. For example, suppose 64-year-old Frank has an adjusted gross income of $30,000 and long-term care premiums totaling $5,000, plus $1,000 in other medical expenses. Ten percent of $30,000 is $3,000, which is then his AGI Threshold. Therefore, Frank can only deduct any medical and LTC expenses that exceed $3,000. The 2016 limit for counting 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 countable $3,900 in long-term care premiums to the $1,000 in other expenses his total medical expenses are $4,900. He can therefore deduct $1,900 in medical expenses from his income ($4,900 — $3,000).
If Frank is 70 in 2016, the calculation changes because his medical and LTC expenses only need to exceed 7.5 percent of his income, which would be $2,250 in Frank’s case ($30,000 X 7.5% = $2,250). In essence, he has a lower qualifying AGI Threshold. Also, the amount of premiums he can count toward his deduction is increased because of his age: because he is 70, he can count toward his threshold up to $4,870 in LTC premiums. Subtracting the 7.5 % deduction threshold from his total medical expenses, Frank can deduct $3,620 in medical & LTC expenses from his income ($4,870 + $1,000 — $2,250). In 2017, Frank will only be able to deduct medical and LTC expenses that exceed 10 percent of his income, so his qualifying AGI threshold will go up and, hence, the amount he can actually deduct from his income will go down.
In sum, the amount of your tax deduction will depend upon your age, the amount of your adjusted gross income, your applicable AGI Threshold and the extent to which your countable medical expenses exceed your AGI threshold.
Gene L. Osofsky wishes to thank ElderLawAnswers.com for permission to revise and publish this article.