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You mentioned in one of your long-term care insurance articles that the premiums are tax-deductible, based on a sliding age scale. What are the rules for writing off these costs?
A portion of your long-term care premiums may be tax-deductible as a medical expense if you itemize your taxes and your policy meets certain standards (most new policies qualify for the write-off, but ask your long-term care insurance company to make sure).
The portion of the premiums you can include as a medical expense is based on your age and increases a bit each year for inflation. For 2008, you can include up to the following in qualified long-term care premiums (the limits are for each person and cannot exceed the premiums you've paid):
Age 40 or younger by year end: $310
41 -- 50: $580
51 -- 60: $1,150
61 -- 70: $3,080
71 and older: $3,850
But that's only the first part of the calculation. You add your eligible long-term care insurance premiums to your other unreimbursed medical expenses. You can write off those costs only after they exceed 7.5% of your adjusted gross income. If your adjusted gross income is $50,000 for the year, for example, you'll only be able to write off medical expenses beyond $3,750.
Say, for example, that you are 62 years old, have $3,000 in unreimbursed medical expenses and paid $4,000 in long-term care insurance premiums in 2008. You would add $3,000 plus $3,080 (the portion of the long-term care premiums you can count as medical expenses) to get $6,080 in unreimbursed medical expenses. If your adjusted gross income for the year was $50,000, then you would be able to deduct $2,330 in medical expenses on Schedule A when you file your 2008 taxes ($6,080 in eligible expenses, minus $3,750, which is 7.5% of your AGI).
For more information about the types of long-term care insurance policies that qualify for the deduction and a full list of which medical expenses are tax-deductible, see IRS Publication 502, Medical and Dental Expenses. Also see the Medical Expenses section of Kiplinger's Taxopedia. And for more information about long-term care insurance and paying for care, see our Long-Term Care Center.
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