Are you paying pricey premiums for long-term care (LTC) insurance? Don’t overlook a tax break.
Strategy: Add the allowable cost to your medical expenses. This could push you over the tax threshold for a medical deduction.
Currently, you can deduct unreimbursed medical expenses in excess of 7.5% of your adjusted gross income (AGI). The threshold is scheduled to increase to 10% of AGI in 2013.
But the IRS limits the amount of LTC insurance premiums you can deduct as a medical expense based on your age (see chart). For instance, if you turned age 55 last year, you can deduct up to $1,270 on your 2011 return.
Note that your qualified medical expenses may also include the cost of LTC coverage for a relative. For example, you might be paying premiums to insure an elderly parent or in-law. If you provide more than half of the relative’s annual support, you can generally add this cost to your medical deduction, even if he or she isn’t your tax dependent. Of course, the deductible portion of the payment is still based on the insured’s age.
Tip: Approximately half the states also allow a deduction or credit for LTC insurance that can offset state income tax.