Mixed News on Changes to Long-Term Care Tax Deductions

Buying LTC coverage is more deductible than ever—for some

Beware: gender-based LTCI pricing is coming. (Photo: AP) Beware: gender-based LTCI pricing is coming. (Photo: AP)

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Some clients with long-term care (LTC) insurance policies will be pleased to know that the IRS has increased the amount of premiums that are deductible for 2013.

Others will not be so pleased to learn that the news comes with a caveat: not everyone will be able to take advantage of the increase, and some of those who do will have to pay more in medical expenses before they can write off any part of their premiums.

Here’s the good news: deductibility limits have risen, with the maximum now at $4,550. Deductibility limits are age-based, with those 40 or younger at the end of the tax year getting a $360 deduction; to get the max, you’ll have to be 71 or older.

AdvisorOne Special Report: 20 Days of Tax Planning Advice for 2013The bad news is that, with the medical deduction requirements increasing from 7.5% to 10% of adjusted gross income for those under 65, individuals who are eligible to deduct premiums paid toward a qualified plan will have to spend more on care and premiums to be able to get that deduction. Clients who are 65 or older will still be using the 7.5% figure, however, and as their medical expenses are likely to increase even as their income falls, they may be able to get the full use from the increased deduction.

Advisors have something else to think about for their female clients. With two major players in the LTC industry, Genworth and John Hancock, planning on changing premium structures for new LTC policies to increase premiums for women, their opportunities to purchase affordable coverage are narrowing. Women live longer on average and use considerably more LTC benefits than men; they were responsible for 65% of new claims in 2011.

According to the American Association for Long-Term Care Insurance (AALTCI), other insurers are likely to follow in Genworth’s and Hancock’s footsteps, with premiums for women possibly increasing by 20% to 40%. Some of the new pricing will begin this summer.

Only two states ban the practice—Colorado and Montana—so advisors in other states had better have that long-overdue chat with female clients about LTC. Otherwise those clients will be getting a bigger tax deduction for bigger premiums, but they won’t be happy about it.

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Read Get Ready for Gender-Based Pricing on LTC Insurance on AdvisorOne.

Check out AdvisorOne's Special Report home page: 20 Days of Tax Planning Advice for 2013.

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