Nursing-home care can be very expensive. As a result, insurance for such care is growing in popularity. Fortunately, there is some tax relief for these expenses. Both the cost of qualified long-term care and insurance coverage for such care qualify as deductible medical expenses.

“Qualified long-term care” services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal-care services required by a chronically ill individual. The services must be provided under a plan of care presented by a licensed health-care practitioner.

To qualify as chronically ill, an individual must be certified by a physician or other licensed health-care practitioner (e.g., nurse, social worker, etc.) as unable to perform, without substantial assistance, at least two activities of daily living for at least 90 days due to a loss of functional capacity, or as requiring substantial supervision for protection due to severe cognitive impairment (memory loss, disorientation, etc.). Of course, a person with Alzheimer’s disease qualifies.

“Qualified long-term care insurance” is insurance that covers only qualified long-term care services, doesn’t pay costs that are covered by Medicare, is guaranteed renewable, and doesn’t have a cash surrender value. A policy isn’t disqualified merely because it pays benefits on a per diem or other periodic basis without regard to expenses incurred.

For 2016, long-term care insurance premiums are deductible up to the following limits: $390 per year for individuals 40 years old or younger; $730 over 40 to 50; $1,460 over 50 to 60; $3,900 over 60 to 70; and $4,870 over 70. Thus, for 2016, a married couple filing jointly, each of whom is over 70, can deduct up to $9,740 a year in premiums.

For 2015, long-term care insurance premiums are deductible up to the following limits: $380 per year for individuals 40 years old or younger; $710 over 40 to 50; $1,430 over 50 to 60; $3,800 over 60 to 70; and $4,750 over 70. Thus, for 2015, a married couple filing jointly, each of whom was over 70, can deduct up to $9,500 a year in premiums.

These limits apply solely to long-term care insurance premiums. No dollar limits apply to directly incurred long-term care expenses.

Not all taxpayers will be able to deduct the costs of qualified long-term care or insurance for such care. This is because medical expenses are deductible only to the extent they exceed 10% of adjusted gross income (AGI). A more favorable 7.5%-of-AGI threshold applies through 2016 if the taxpayer or the taxpayer’s spouse has reached age 65 by the end of the tax year.

For example, in 2016, if a married couple filing jointly, both younger than 65, has AGI of $80,000, only medical costs in excess of $8,000 ($80,000 × 10%) may be claimed as an itemized deduction. If at least one spouse will reach age 65 by the end of 2016, medical costs in excess of $6,000 ($80,000 × 7.5%) are deductible.

In determining your total medical costs, be sure to include those that you incur for your dependents as well as for yourself. For example, if you pay for the long-term care of an elderly parent or grandparent, you can include those costs along with your own medical expenses if the parent or grandparent is your dependent.

For purposes of the medical expense deduction, the dependency test will generally be met if you provide over 50% of the support of your parent or grandparent, including medical costs. You may not be able to claim a dependency exemption if the parent or grandparent has gross income above $4,050 in 2016 ($4,000 in 2015) or is filing a joint return, but you will still be able to include the medical costs with your own.

Please give us a call if you wish to discuss this subject further.