Many people buy long-term care insurance early, so that they’ll have an easier time paying for the help they need when they need it. There are tax implications to buying long-term care insurance under certain conditions, however insurance premiums can have a positive impact on the amount of taxes you owe, says Smart Asset’s recent article entitled “Is Long-Term Care Insurance Tax Deductible?”
LTC insurance works like any other insurance product — you enter into a contract with an insurance company, pay premiums and then have access to funds to pay for long-term care later in life. The amount you pay in premiums and how long you pay depends on the individual contract you enter. When selecting a policy, you will need to decide on several variables, including the length of the elimination period (amount of time you have to pay privately until the policy is effective), the length of coverage (usually 3 years) and the amount of per-day benefit you will receive. Long-term care insurance can be used to pay for various services, including:
- Nursing homes;
- Assisted living & memory care facilities;
- Adult daycare centers; and
- In-home care.
Long-term care insurance premiums are tax deductible. However, there are rules you’ll need to know. First, to be eligible for a tax deduction, the premiums you pay must exceed 7.5% of your adjusted gross income. For self-employed people, the rules are a bit different. The premium can be taken as a tax deduction as long as they’ve made a net profit. Once you’ve met that threshold, you can’t just deduct the full amount of the premium.
There is a limit to how much you can deduct based on age. These are the limits for this year:
- 40 and under: $450
- 41-50: $850
- 51-60: $1,690
- 61-70: $4,510
- 71 and older: $5,640
In order to qualify for a long-term care tax deduction, the policy must meet certain regulations, so check with your insurance broker to see that your plan does.
Reference: Smart Asset (Oct. 20, 2022) “Is Long-Term Care Insurance Tax Deductible?”