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The Internal Revenue Service (IRS) has announced the amount taxpayers can deduct from their 2020 income as a result of buying longterm care insurance.

Premiums for “qualified” longterm care insurance policies (see explanation below) 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.

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. (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.)  Additionally, these tax deductions allowed by the IRS for longterm care insurance premiums are generally not available with so-called hybrid policies, such as life insurance and annuity policies with a longterm care benefit.

However, there is a limit on how large a premium can be deducted, depending on the age of the taxpayer at the end of the year. Following are the deductibility limits for tax year 2020. Any premium amounts for the year above these limits are not considered to be a medical expense.

Longterm care deduction chart

Attained age before the close of the taxable year Maximum deduction for year
40 or less $430
More than 40 but not more than 50 $810
More than 50 but not more than 60 $1,630
More than 60 but not more than 70 $4,350
More than 70

$5,430

 

Another change announced by the IRS involves 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 longterm care expenses or $380 per day, whichever is greater.

For these and other inflation adjustments from the IRS, click here.

What Is a “Qualified” Policy?

To be “qualified,” longterm care 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.

Reach the Elder Law, Estate Planning a Probate Law experts R. F. Meyer & Associates at 614-407-7900, Info@ElderLaw.US, or ill out the contact form at ElderLaw.US/Contact.