There can be tax-relief, particularly tax deductions, associated with nursing home care and insurance. Both the cost of qualified long-term care and insurance coverage for such care qualify as deductible medical expenses.
Deduction for qualified long-term care services and insurance
Taxpayers themselves or people who have qualified dependents in nursing home care may be eligible for these special tax deductions. For individuals, the IRS considers tax-qualified long-term care premiums a medical expense. To what degree that will save you money on your taxes largely depends on your age and how you make a living.
What are Deductible 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. 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.).
What is Deductible Qualified long-term care insurance?
“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. 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.
Dependency Test for Medical Expense Deduction
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. 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.