Long Term Care Insurance (LTCI) remains one of the most tax advantaged planning solutions available. Not only are the benefits paid tax-free (IRC 7702b), but policyholders may deduct some or all of their premiums. The Internal Revenue Service has announced it will be increasing the amount long term care insurance policyholders can deduct from their 2018 taxes for owning coverage.
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 the insured’s adjusted gross income in 2018. (IRC Sec. 213)
However, there are age-banded limits on how much premium can be deducted, and these are based on the policyholder’s age at the end of the year.
Below are the deductibility limits for 2017 and 2018. Amounts above these limits are not considered to be a medical expense.
|Attained age before the close of the taxable year||Maximum deduction for 2017||Maximum deduction for 2018|
|40 or less||$410||$420|
|More than 40 but not more than 50||$770||$780|
|More than 50 but not more than 60||$1,530||$1,560|
|More than 60 but not more than 70||$4,090||$4,160|
|More than 70||$5,110||$5,200|
Source: IRS Revenue Procedure 2016 – 55 (2017 limits) and 2017-58(2018 limits).
The IRS also updated their benefit amounts allowed for 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. (This amount did not change from 2017).
Whether you already own, or are looking to buy long term care insurance, you can learn more about these tax incentives by downloading our free consumer guide.