Todd's Tax Service LLC
Long Term Care Issues
Long Term Care Premiums are tax deductible up to the following limits. Qualifed long-term care insurance contracts must meet all of the following requirements:
1) It must be guaranteed renewable.
2) It must not 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.
3) It must not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed.
4) It must 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
Age - 2014 2013 2012
Age 40 or less $370 $360 350 These are the maximum deductible premium.
Age 41-50 700 680 660 LTC premiums are deducted on Schedule A
Age 51-60 1,400 1,360 1,310 with your medical expenses.
Age 61-70 3,720 3,360 3,500 Self employed taxpayers may add them to
Age 71 + 4,660 4,550 4,340 the self employed health insurance adjustment.
Per Diem limit per day 330 320 310 Payments to the insured in excess of this amount are taxable.
State Income Tax Information - Long Term Care Premiums
Minnesota has a credit for premiums paid - the maximum credit is $100 for taxpayer and another $100 if spouse has LTC coverage. There is a worksheet to determine the credit amount.
Wisconsin has a subtraction from income for premiums paid. There is a worksheet to determine the subtraction amount.
Tax Deductible Long Term Care Costs
A chronically ill taxpayer may deduct out of pocket long term care costs. Chronically ill means within the previous 12 months a licensed health care practitioner has certified that the individual is unable to perform at least two activities of daily living.
Examples of tax deductible costs:
The cost of living in a nursing home including meals and lodging.
Wages paid to a nurse who lives with the taxpayer in the taxpayer's home in order to provide long term care services.
The cost to provide personal services in the taxpayer's home if the taxpayer is chronically ill.
This list is by no means exhaustive but is intended to provide a few examples of tax deductible expenses and to demonstrate that many long term care services are now provided inside the taxpayer's home and are tax deductible.
How to pay for long term care costs?
Most people do not relish the thought of a long stay in a long term care facility. But many aging boomers and seniors alike fear these costs having heard horror stories of people who ended up in long term care facilities and faced huge costs for long term care.
For seniors 65+, Medicare may pay for a limited number of days of long term care after a 3 day inpatient hospital stay.*
Medicare has publications about long term care coverage - please call 1-800-633-4227 1-800-633-4227.
If you are concerned about how you might pay for long term care costs, you should consider discussing long term care insurance options with a licensed insurance agent. This of course assumes you can afford the premiums without compromising your current life style.
Medicaid is a state run program (in co-operation with the federal government) that funds long term costs when taxpayers deplete their resources and can no longer afford to pay for out of pocket costs without help.
Medicaid planning is a field which involves consultation with an attorney often focused on how to "protect" the taxpayer's assets in case he or she should be confined to a nursing home and deplete his or her resources.
*Medicare may pay for a short stay in a nursing home for physical rehab as an example. Ask your hospital staff how your stay is coded and be assertive in making sure you meet the medicare requirements in order to have part of your long term care stay paid for. Rehab after hip or knee replacement is among the most common reasons for admission into a long term care facility.
Plan ahead. By downsizing into a more accessible and livable home (no stairs) or a place with an elevator and in house services, it may be possible to bypass the dreaded long term care stay.
Todd's Tax Service LLC does not engage in Medicaid Planning, however, this subject often comes up during the tax interview.
The most common topic of discussion among the general taxpaying public is how to "protect" their home and other assets from the nursing home. There is a tremendous fear of going into a nursing home and draining a lifetime of savings to pay for long term care.
There is no magic answer to the problem of long term care costs. Presumably if the nursing home resident has "protected" their assets (by giving them away), the taxpayer (the nursing home resident's grandchildren) is on the hook to pay for the long term care costs. There is no free lunch.
Here are some points to ponder as you discuss your long term care concerns with your attorney...
Depending on how you structure asset transfers, there may be unintended tax consequences. Most commonly, a personal residence that is gifted to a family member(s) changes the status of the home from a personal residence which qualifies for a IRC Section 121 exclusion of capital gain up to 250 or 500K to a gifted asset which retains the basis of the donor (person giving the gift). Make sure your attorney considers income tax ramifications of your estate planning decisions. If you make an outright gift of your home to your children, you may be required to file a gift tax return. And your children may have to pay capital gain tax upon sale of the home.
If your overriding objective is to "protect" assets (remember those little grandchildren who will be paying taxes long after you are gone), your attorney may have other options available that avoid the situation described in the previous paragraph.
The average stay in a nursing home is about 2 years. And it is becoming increasingly common for the elderly to receive services in their homes rather than move into a nursing home.
People bemoan the high cost of long term care. How much would you charge to care for an elderly person who requires 24 hour care? Providing care is a very labor intensive occupation involving many costs. Should we expect this service to be free or low cost?
When a spouse enters a long term care facility, it is a common fear that the "healthy spouse" will be impoverished. This is simply not true. A "healthy spouse" is able to remain in their home and retain a certain level of assets.
Americans are living longer lives and the good news is that many of us live active healthy lives well into our 80's and beyond. Don't let the fear of entering a nursing home spoil the fun.
If you or a loved one is potentially at risk to need the services of a long term care facility, do your homework. Contact the Senior Linkage line and ask for help. Visit 3 facilities that you might consider for services and learn about their waiting lists, amenities, costs, available services etc. Waiting until a crisis strikes can lead to unintended consequences.
Link to Minnesota Department of Health and Human Services
Note fact sheets on MDHS website on LTC Consultation Services and Nursing Home Fact Sheets