Nursing-home care can be very expensive. As a result, insurance for such care is growing in popularity. Fortunately, there is some tax relief for these expenses. Both the cost of qualified long-term care and insurance coverage for such care qualify as deductible medical expenses.
Deductions for “Qualified long-term care” services
“Qualified long-term care” services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal-care services required by a chronically ill individual. The services must be provided under a plan of care presented by a licensed health care practitioner.
What qualifies as chronically ill?
To qualify as chronically ill, an individual must be certified by a physician or other licensed health-care practitioner (e.g., nurse, social worker, etc.) as unable to perform, without substantial assistance, at least two activities of daily living for at least 90 days due to a loss of functional capacity, or as requiring substantial supervision for protection due to severe cognitive impairment (memory loss, disorientation, etc.). Of course, a person with Alzheimer’s disease qualifies.
Qualified long-term care insurance deduction
“Qualified long-term care insurance” is insurance that covers only qualified long-term care services, doesn’t pay costs that are covered by Medicare, is guaranteed renewable, and doesn’t have a cash surrender value. A policy isn’t disqualified merely because it pays benefits on a per diem or other periodic basis without regard to expenses incurred.
Are long-term care insurance premiums are deductible?
For 2013, long-term care insurance premiums are deductible up to the following limits: $360 per year for individuals 40 years old or younger; $680 over 40 to 50; $1,360 over 50 to 60; $3,640 over 60 to 70; and $4,550 over 70. Thus, for 2013, a married couple filing jointly, each of whom is over 70, can deduct up to $9,100 a year in premiums. For 2012, long-term care insurance premiums were deductible up to the following limits: $350 per year for individuals 40 years old or younger; $660 over 40 to 50; $1,310 over 50 to 60; $3,500 over 60 to 70; and $4,370 over 70. Thus, for 2012, a married couple filing jointly, each of whom was over 70, could deduct up to $8,740 a year in premiums. These limits apply solely to long-term care insurance premiums.
No dollar limits apply to directly incurred long-term care expenses
No dollar limits apply to directly incurred long-term care expenses. Not all taxpayers will be able to deduct the costs of qualified long-term care or insurance for such care. This is because medical expenses are deductible only to the extent they exceed 10% of adjusted gross income (AGI) for 2013, up from 7.5% of AGI in 2012. The more favorable 7.5%-of-AGI threshold continues to apply through 2016 if the taxpayer or the taxpayer’s spouse has reached age 65 by the end of the tax year.
Example of Long Term Care Tax Deductions
For example, in 2013, if a married couple filing jointly, both younger than 65, has AGI of $80,000, only medical costs in excess of $8,000 ($80,000 × 10%) may be claimed as an itemized deduction.
How to determine total medical costs for taxes?
In determining your total medical costs, be sure to include those that you incur for your dependents as well as for yourself. For example, if you pay for the long-term care of an elderly parent or grandparent, you can include those costs along with your own medical expenses if the parent or grandparent is your dependent. For purposes of the medical expense deduction, the dependency test will generally be met if you provide over 50% of the support of your parent or grandparent, including medical costs.
Claiming Dependents for Medical Care Tax Deductions
You may not be able to claim a dependency exemption if the parent or grandparent has gross income above $3,900 in 2013 ($3,800 in 2012) or is filing a joint return, but you will still be able to include the medical costs with your own.