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Tax

Count LTCI Premiums for Medical Deduction

You can add the cost of premiums to the amount you need to surpass the deduction threshold for medical expenses. But the IRS strictly limits the amount you can write off for LTCI insurance each year.

Of course, the health insurance premiums you pay out of your own pocket count as deductible medical expenses, just like expenditures for visiting a doctor or dentist or the hospital. But what about long-term care insurance (LTCI)? There’s both good news and bad news on this issue.

First, the good news: You can add the cost of premiums to the amount you need to surpass the deduction threshold for medical expenses. But now here’s the bad news: The IRS strictly limits the amount you can write off for LTCI insurance each year.

Keep in mind that you face significant obstacles before you deduct a single penny of your medical expenses. For starters, a deduction is only available if you itemize deductions. No deduction is allowed for taxpayers who claim the standard deduction instead. This is a sizeable portion of the population.

In addition, even if you itemize, the tax law imposes a threshold. Currently, you can deduct unreimbursed medical expenses in excess of 7.5% of your adjusted gross income (AGI), down from 10% of AGI, if you itemize deductions. The medical expense deduction threshold had see-sawed back and forth for several years between 10% and 7.5% of AGI, but recent legislation made the lower threshold a permanent part of the tax code, beginning in 2021.

Nevertheless, this deduction threshold remains daunting for most taxpayers. For example, if you have an annual AGI of $100,000 and incur $8,500 in qualified medical expenses, your deduction is limited to just $1,000. If you have $7,000 in qualified medical expenses, you get no deduction.

Some often-overlooked expenses, like the cost of LTCI premiums, may put you over the top of the threshold or increase an existing deduction. But there’s a catch: Even if you exceed the 7.5%-of-AGI threshold, the IRS limits the amount of LTCI premiums you may deduct as a medical expense, based on your age.

For example, if you turned 55 this year, you can deduct up to $1,690 on your 2022 return. These figures are adjusted for inflation annually, as shown below.

Age Attained Before Close of Tax Year          Deduction limit                          

40 or younger                                                            $450

41-50                                                                         $850

51-60                                                                         $1,690

61-70                                                                         $4,520

71 or older                                                                 $5,640

Note: The limits for 2022 are the same as they were for 2021, but a sizeable adjustment may be coming in 2023.

Finally, be aware that your qualified medical expenses may also include the cost of LTCI coverage for a relative. Suppose that you’re paying premiums to insure an elderly parent or aunt or uncle. If you provide more than half of the relative’s annual support, you can generally add this cost to your medical deduction—even if he or she isn’t your tax dependent. Reminder: The deductible portion of the payment is still based on the insured’s age.