17.15 Long-Term Care Premiums and Services

A qualified long-term care policy provides only for long-term-care services for the “chronically ill” (see below). If you pay premiums for a qualified long-term care policy, you may treat a fixed amount that depends on your age as medical expenses (subject to the AGI floor (17.1)).

If you, your spouse, or your dependent is chronically ill, you may include as medical expenses your unreimbursed expenses for qualifying long-term-care services.

Qualifying long-term care services for a chronically ill individual.

A chronically ill person is someone who has been certified by a licensed health-care practitioner within the preceding 12 months as being unable to perform for a period of at least 90 days at least two of the following activities without substantial assistance: eating, toileting, dressing, bathing, continence, or transferring. Also qualifying as chronically ill is someone who requires substantial supervision because of severe cognitive impairment, such as from Alzheimer’s disease.

Qualifying long-term-care services for a chronically ill individual are broadly defined as necessary diagnostic, preventive, therapeutic, curing, treating, mitigation, and rehabilitative services, and also maintenance or personal care services. The services must be provided under a plan of care prescribed by a licensed health-care practitioner, who may be a physician, a registered nurse, a licensed social worker, or other individual meeting Treasury requirements. Services provided by a spouse or relative are deductible only if that person is a licensed professional; services provided by a related corporation or partnership do not qualify.

Filing Tip

Long-Term Care Insurance

Unreimbursed expenses for long-term care services to care for a chronically ill patient are deductible medical expenses subject to the AGI floor. Premiums paid for a qualifying policy are includible in your medical expenses subject to a limit based on your age.

- - - - - - - - - -

Deductible premium costs of long-term-care policies.

Depending on your age at the end of the year, all or part of your premium payments for a qualified long-term-care policy may be included as deductible medical expenses, subject to the AGI floor (17.1).

For 2012, the maximum deductible premium for each person covered under the policy is: $350 for covered persons age 40 or younger at the end of 2012; $660 for those age 41 through 50; $1,310 for those age 51 through 60; $3,500 for those age 61 through 70; and $4,370 for those over age 70. These limits will likely be increased for 2013 by an inflation factor; see the e-Supplement at jklasser.com .

If you are considering purchase of a long-term-care insurance policy, make sure that it qualifies for the tax treatment explained in this section. A qualified contract must provide only for coverage of qualified long-term-care services for the chronically ill (see above) and be guaranteed renewable; it may not provide for a cash surrender value or money that can be assigned, pledged, or borrowed; it may not reimburse expenses covered by Medicare except where Medicare is a secondary payer or the contract makes per diem payments without regard to expenses.

Benefits paid by qualified long-term-care policies.

Benefits from a qualified long-term-care insurance contract (other than dividends) are generally excludable from income. If payments are made on a per diem or other periodic basis, meaning that they are made without regard to actual expenses incurred, there is an annual limitation on the amount that can be excluded. For 2012, per diem payments of up to $310 per day are tax free. If per diem payments exceed the $310 limit, the excess is tax free only to the extent of unreimbursed expenses for qualified long-term-care services. The per diem limit must be allocated among all policyholders who own qualified long-term-care insurance contracts for the same insured.

You should receive a Form 1099-LTC showing any payments to you from a long-term-care insurance contract. Box 3 of Form 1099-LTC should indicate whether the payments were made on a per diem basis or were reimbursements of actual long-term-care expenses. Per diem payments and reimbursements must be reported on Form 8853 to determine if any of the per diem payments are taxable.

Filing Instruction

Form 8853

If you received payments in 2012 from a qualified long-term care policy, you must figure the amount of taxable payments, if any, on Form 8853.

- - - - - - - - - -