Increased Long-Term Care Insurance Tax Deduction
By Marvin Rotenberg, IRA Technical Expert
Phase-outs apply to many items on your income tax return. This means that if your adjusted gross income (AGI) exceeds specified limits, your eligibility to deduct certain items will be cut back or curtailed altogether, including deductions for contributions you make to traditional IRAs. When your income increases, you could lose lots of otherwise allowable itemized deductions as well as personal exemptions. Generally, the more your income increases, the more your tax return becomes like a pin ball machine. Bells and whistles go off signaling the loss or reduction of many deductible items.
For 2012, however, the tax deduction for purchasing long term care insurance has increased. If you itemize deductions, you can generally deduct part of your premiums if they, together with your other un-reimbursed medical expenses, amount to more than 7.5% of your AGI. (For most taxpayers, the 7.5% increases to 10% in 2013.) The maximum amount of premiums you can deduct each year depends on your age at the end of the year. For 2012, the maximums are:
|40 or less||$350||$340|
For policies issued after 1976, the premiums are deductible so long as the policies meet certain requirements. For instance, they must give you the option of “inflation protection.” You don’t have to choose these options to qualify for the deduction, but the policy has to offer them to you. For policies issued before 1977, the premiums are deductible if the policies were approved by the insurance commissioner of the state in which such policies were sold.
We haven’t seen many tax deductions increase in the last several years, so if you are paying premiums for long term care insurance you certainly should ask your tax advisor if you can expect to see an increased deduction for them in 2012. You wouldn’t want to miss out on any tax deduction for which you are eligible, no matter how small it may be.
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