Is long-term care insurance deductible?

Dear Tax Talk,
Can you deduct long-term care insurance premiums?
— Judith

Dear Judith,
A long-term care insurance policy provides a daily allowance for the care of an individual who is no longer able to care for herself. The daily allowance is intended to cover the costs of nursing home care, nurses, aides and similar expenses. These policies became popular in the 1990s.

The policy premium varies depending on a person’s age, health and the amount of daily allowance. Long-term care premiums within certain limits are deductible as itemized medical expenses, as are health insurance premiums. The total of itemized medical expenses is deductible if it exceeds 7.5 percent of AGI (adjusted gross income).

Self-employed individuals and S corporation shareholders with wages can deduct the premiums for long-term care, within certain limits, as an adjustment to AGI without having to apply the 7.5-percent threshold applicable to itemized medical expenses.

Qualified long-term care premiums up to the annual amounts shown below can be deducted per individual:

The insurance contract must:

1. Be guaranteed renewable.
2. Not provide for a cash surrender value or other money that can be paid, assigned, pledged or borrowed.
3. 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.
4. 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.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.