Half of all seniors will need long-term care at some point, according to government estimates. It can be in-home, assisted living or nursing home care.
About one in six will pay $100,000 or more out of their own pockets for long-term-care services
Luckily the tax code can provide some help for seniors or anyone else stuck with sizable bills for necessary long-term-care services or support.
Long-term-care costs may be deducted by individuals as itemized deductions on Schedule A of the return, provided all requirements are met. They’re treated as medical expenses. Taxpayers can claim the deduction to the extent their total medical costs exceed 10% of their adjusted gross income.
The care must be for medically necessary services that are rehabilitative, diagnostic, preventive, therapeutic, mitigating, curing treating, for maintenance or for personal care. The cost of meals and lodging at an assisted living facility or a nursing home also counts if the main reason you are there is to get medical care.
Only long-term-care costs of chronically ill individuals can be written off. A person is chronically ill if he or she is unable to perform at least two activities of daily living without help for at least 90 days. Activities of daily living include eating, using the toilet, bathing, dressing and the like. Anyone in need of long-term care because of dementia or another severe cognitive impairment is also chronically ill because of dementia or another severe cognitive impairment is also chronically ill if substantial supervision is needed to protect his or her personal health and safety. The chronic illness must be certified by a licensed health care practitioner.
Premiums that one pays for long-term-care insurance are also tax deductible. But the write-off is capped for each person according to his or her age. For 2019, taxpayers who are 71 or older can deduct up to $5,270 per person. Filers age 61 to 70…$4,220. Those who are 51 to 60 can deduct as much as $1,580. Individuals who are 41-50 can take $790. And people age 40 and younger…$420. For most, long-term-care premiums are medical expenses, deductible only by itemizers to the extent total medicals exceed 10% of adjusted gross income. However, self-employed persons can often deduct long-term-care insurance premiums as an adjustment to income on Schedule 1 without having to itemize.
There are a number of requirements for the insurance policy itself, too. It can cover only long-term-care services. As a result, you can’t deduct premiums paid for a “hybrid” policy that combines life insurance with coverage for long-term care. The policy must be renewable. Any cash surrender value can’t be paid, assigned, pledged or borrowed. Refunds and dividends under the policy generally must be used to reduce future premiums or increase future benefits. The policy can’t pay costs that would be paid under Medicare, except if Medicare is a secondary payer. And per diem or other periodic payments without regard to expenses are prohibited.