Tuesday, December 14, 2010

Increase in Deduction for LTC Insurance premiums for 2010 tax year

There is a slight increase of about 3% for tax year 2010 in the amount of long-term care insurance premiums that can be deductible. To take advantage of the increase your premium payment needs to be made before 12/31/10. Here is what the IRS says about the long-term care tax deduction:

Qualified Long-Term Care Insurance Contracts

A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. The contract must:

Be guaranteed renewable,

Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed,

Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and

Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses.

The amount of qualified long-term care premiums you can include is limited. You can include the following as medical expenses on Schedule A (Form 1040).

Qualified long-term care premiums up to the amounts shown below.

Age 40 or under – $320.

Age 41 to 50 – $600.

Age 51 to 60 – $1,190.

Age 61 to 70 – $3,180.

Age 71 or over – $3,980.

Unreimbursed expenses for qualified long-term care services.

Note. The limit on premiums is for each person.

Also, if you are an eligible retired public safety officer, you cannot include premiums for long-term care insurance if you elected to pay these premiums with tax-free distributions from a qualified retirement plan made directly to the insurance provider and these distributions would otherwise have been included in your income.

This information is taken from IRS Publication 502, Medical and Dental Expenses which you can find at www.irs.gov/publications/p502/ar02.html


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