According to IRS Revenue Procedure 2020-45, a couple age 70 or older who both have the right kind of long-term care insurance policy can deduct as much as $11,280 in 2021 an increase of $420 from the $10,860 limit for 2020. Essentially, more of the premiums you pay will be deductible. If you own a policy or are considering buying one, here are a few things to know.
The premiums are tax-deductible for the taxpayer as long as they, along with other unreimbursed medical expenses, exceed 7.5% of the insured’s adjusted gross income. Someone self-employed can take the amount of the premium as a deduction as long as they made a net profit. There’s a limit on the deduction allowed based on the taxpayer’s age at the end of the year, and any premium amount above these limits isn’t considered a medical expense.
The nitty-gritty of making deductions:
- The policy must be considered “tax-qualified”
- You’ll need to itemize deductions on a Schedule A to claim a deduction for medical expenses paid out of pocket
- You can only deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income
- The amount that can be claimed as a medical expense depends on the policy holder’s age
- If you’re self-employed, it’s possible to write off the premiums as a business expense rather than an itemized medical expense
- If you own an asset-based or hybrid LTC policy, the extension rider or “true LTC” portion of the premium is the part eligible for deduction. Check with your financial professional to determine the type of policy you own
2022 Long-Term Care Insurance Deductible Limits Per Individual1
There is a limit on how much of the premium can be deducted depending on the age of the taxpayer at the end of the year. Any premiums above these amounts are not considered to be a medical expense. For example, if you’re 55 and pay $2,000 a year in long-term care premiums, only $1,690 of what you paid would be deductible in 2022. If you were 65, though, the full $2,000 would be deductible because of the higher limit at that age.
The tax benefits of a long-term care insurance policy is something to take into account if you’re looking to purchase. As your trusted financial professional, we are here to help get you the information you need to make an informed decision. Contact our office at (540) 720-5656.
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.