If you’re paying pricey premiums for long-term care (LTC) insurance, don’t overlook the tax implications.
Strategy: Add the allowable cost to other deductible medical expenses.
Currently, you can deduct unreimbursed medical expenses in excess of 10% of your adjusted gross income (AGI). The threshold is 7.5% of AGI if you’re age 65 or older.
However, even if you exceed the threshold, the IRS limits the amount of LTC insurance premiums you may deduct as a medical expense, based on your age. (See chart for 2014 figures and projections for 2015.) Qualified medical expenses may also include the cost of LTC coverage for a relative. If you provide more than half of the relative’s annual support, you can generally add this cost to your medical deduction—even if a dependency exemption deduction ($3,950 for 2014) cannot be claimed for the person.
Tip: Many states also allow a deduction or credit for LTC insurance.