New Long-term Care Insurance Deductions in 2018
If you pay premiums for a long-term care policy, you should learn about the 2018 premium deductions that might impact your taxes.
The Internal Revenue Service (IRS) is increasing the amount taxpayers can deduct from their 2018 income as a result of buying long-term care insurance.
Ten Percent Threshold
If premiums for “qualified” long-term care insurance policies plus other unreimbursed medical expenses (including Medicare premiums) exceed 10 percent of the insured’s adjusted gross income, the premiums become tax deductible.
These premiums — what the policyholder pays the insurance company to keep the policy in force — are deductible for the taxpayer, his or her spouse, and other dependents.
Different Rules for Self Employed
If you are self-employed, the tax-deductibility rules are a little different. You can take the amount of the premium as a deduction as long as you made a net profit. Your medical expenses do not have to exceed a certain percentage of your income.
Deduction Limits by Age
However, the age of the taxpayer at the end of the year impacts the limit on how large a premium can be deducted. Any premium amounts for the year above the deductibility limits in the table below are not considered to be a medical expense.
Per Diem or Indemnity Policy Changes
The IRS also announced changes involving benefits from per diem or indemnity policies which pay a predetermined amount each day. These benefits are not included in income except amounts that exceed the beneficiary’s total qualified long-term care expenses or $360 per day, whichever is greater.
What Is a “Qualified” Long-Term Care Policy?
To be “qualified,” policies issued on or after January 1, 1997, must adhere to certain requirements, among them that the policy must offer the consumer the options of “inflation” and “nonforfeiture” protection, although the consumer can choose not to purchase these features.
Policies purchased before January 1, 1997, will be grandfathered and treated as “qualified” as long as they have been approved by the insurance commissioner of the state in which they are sold.
So, keep these new policies in mind and talk to your accountant about the potential impact on your tax planning.