January 19, 2011

Clients and the New Higher Deductibility Limits for LTC Insurance

In helping your older clients plan for the new year, remember that even though there is no cost-of-living adjustment (COLA) for Social Security benefits in 2011, the IRS has raised the deductibility limits for long-term care (LTC) policies purchased in 2011.

The premiums you pay for your long-term care insurance are deductible as itemized medical expenses (subject to the 7.5% AGI threshold) based on your age at the end of the year.  Individual taxpayers can treat premiums paid for tax-qualified long-term care insurance for themselves, their spouse or any tax dependents (such as parents).  The 2011 limits are as follows:

Attained Age Before Close of Taxable Year 2011 Limits 2010 Limits
Age 40 or less  $340 $330
More than 40 but not more than 50 $640 $620
More than 50 but not more than 60  $1,270 $1,230
More than 60 but not more than 70 $3,390 $3,290
More than 70  $4,240    $4,110

 

 

 

 

LTC insurance premiums may be paid from a Health Savings Account (HSA) up to the limits shown above.  In addition, a self-employed individual can deduct 100% of his or her out-of-pocket LTC premiums up to the amounts listed above. This is an “above-the-line deduction” and does not require meeting the 7.5% adjusted gross income (AGI) threshold to take the deduction. 

In our planning recommendations, we always include the cost of a long-term care policy for the future. The payment of this premium could be a great gift for clients who have parents or other relatives who may benefit from this type of coverage…it’s tax deductible to the donor and provides both the client and the covered individual(s) with peace of mind that their future care has been addressed.

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