Does my long-term care policy provide any real tax benefits?
With the holidays in full swing, most people are preoccupied with everything from travel plans and gift wrapping to cooking and social engagements. In fact, it’s safe to assume that the furthest thing from everyone’s mind right now is filing their 2016 federal tax return.
However, given our recent discussions about the value of long-term care insurance, it might be a good time to discuss some of the tax benefits that can be derived from having such a policy. In a way, it could be viewed as giving yourself an extra gift this holiday season.
According to experts, the single greatest tax benefit provided by long-term care insurance is the ability to deduct the premiums paid. However, as most things related to the federal tax code go, this is not as simple writing off the total annual premiums.
In general, long-term care insurance premiums are included under the umbrella of healthcare expenses for the purposes of itemized deductions. As such, if a person determines that their health care costs for the year exceeded 10 percent of their adjusted gross income, they can deduct the excess amount.
It’s important to note, however, that the Internal Revenue Service has also instituted a cap on the amount of the deduction that can be taken for long-term care insurance premiums based on age.
Accordingly, qualifying taxpayers will be able to take a long-term care premium deduction in 2016 depending upon where they fall within the following table:
- Those age 40 or younger: $390
- Those between the ages of 41 to 50: $730
- Those between the ages of 51 to 60: $1,460
- Those between the ages of 61 to 70: $3,900
- Those ages 71 and older: $4,870
We’ll continue this discussion about the tax benefits of long-term care insurance in our next post, including the tax treatment afforded to benefits paid.
Source: U.S. News & World Report, “The tax benefits of long-term care insurance,” Maryalene LaPonsie, Dec. 9, 2016