The tax deductible limits for traditional long-term care insurance premiums paid in 2017 have been increased, according to a just-released IRS announcement brought to our attention this week by Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI).
Slome says it is information worth sharing with your traditional LTCI clients because it can help them reduce their taxes.
“The tax deductibility of premiums when you purchase traditional long-term care insurance provides a real incentive for consumers, especially after retirement,” says Slome. “The special tax advantages are not available when individuals purchase linked-benefit products such as life insurance or annuity policies that can provide a future long-term care benefit.”
According to AALTCI, in 2016 more people will purchase combo products than are purchasing traditional LTC insurance policies. “Only traditional long-term care insurance policies have the benefit of potentially being tax-deductible to an individual,” Slome says. “After retirement when income typically declines, tax deductions can take on a significant added value to take advantage of.”
Starting in 2017, all individuals may deduct qualified medical expenses that exceed 10% of adjusted gross income (AGI) for the year. For 2016, individuals age 65 and older the threshold remains at 7.5% of AGI.
Premiums paid for traditional long-term care insurance are includable in the term “medical care.” The following are the just-announced 2017 limits:
Attained Age Before Close of Taxable Year
40 or less: $410 (+5.1%) – 2017 limit; $390 – 2016 limit
More than 40 but not more than 50: $770 – 2017; $730 – 2016
More than 50 but not more than 60: $1,530 – 2017; $1,460 – 2016
More than 60 but not more than 70: $4,090 – 2017; $3,900 – 2016
More than 70: $5,110 (+4.9) – 2017; $4,870 -2016
Source: IRS Revenue Procedure 2016-55 (2017 limits) and 2015-53 (2016 limits)
5 million who itemize medical costs could deduct LTCI premiums
The IRS allows individuals to deduct medical expenses including preventative care, dental and vision care, prescription medications, glasses, contacts and hearing aids.
“Many seniors have medical expenses that don’t meet the threshold but when the cost of long-term care insurance is included, the threshold is exceeded – providing a significant tax deduction,” Slome adds.
“This is a real benefit for the 23 million individuals age 65 or older who file federal tax returns,” says Slome, who notes that AALTCI analyzed IRS reports for the latest tax year (2014). “Nearly 5.1 million tax filers who reported income of between $40,000 and $100,000 reported medical expenses in excess of the AGI limits. For retired seniors the combination of reduced income and increased medical costs means the cost of traditional long-term care insurance can be all or mostly tax deductible.”
The American Association for Long-Term Care Insurance advocates for the importance of planning and supports insurance and financial professionals who provide long-term care financing solutions. Visit the organization’s website (www.aaltci.org) or call 818-597-3227 for more information.
Uninsured Long-Term Care is “eating” real estate by the square foot, ACSIA Partners reports
KIRKLAND, Wash. – The cost of care for aging Americans may be viewed as a glutton that devours homes in daily bites that are getting bigger. So says Denise Gott, CEO of ACSIA Partners, one of America’s largest long-term care insurance agencies.”Eleven years ago we started translating long-term care costs into square feet of real estate,” says Gott. “We did this to highlight the financial burden of paying for care.”
In July of 2005 the company calculated that the cost for a private room in a nursing home was “eating” two square feet of the average American home each day. Now the bites are 29% bigger, 2.6 square feet, according to Gott.
ACSIA Partners developed the estimate based on the following facts:
• The national average annual cost for a private room in a nursing home is now $92,376, according to the Genworth 2016 Cost of Care Survey, conducted by CareScout®. That’s about $253 a day, up from $192 in 2005.
• The National Association of Realtors® reports that the median price for U.S. homes is now $240,200. With a median 2,476 square feet per home, according to the U.S. Census Bureau, that equals $97 per square foot, enough to pay for about a third of a day of nursing home care. In 2005, each square foot paid for about half a day, according to Gott.
The ratios vary by region and home type, of course. Here are some examples:
• 4,000 square-foot home in San Francisco, $1,800,000: 0.56 square feet eaten by one day of long-term care
• 1,902 square-foot home in Cleveland, $150,000: 3.21 square feet eaten by one day of long-term care
• 1,328 square-foot home in Jamestown, N.Y., $65,000: 5.17 square feet eaten by one day of long-term care
Note that the less a home is worth, the bigger the relative LTC bite may be. For example, consider a 1,532 square-foot home for sale at $15,000 in Trenton, N.J. It would be “eaten” at the rate of 25.85 square feet a day. Note also that these estimates are very general. For example, in areas where homes cost more, the cost for LTC services may also be higher.
“If you’re not protected by insurance or savings,” says Gott, “figure that for every day someone in your family needs care, there goes another chunk of your home.”
In fact, many Americans may be planning, by default, to pay for care with their home equity, Gott observes. “That’s fine if it’s a conscious choice and the best option in their case. We recommend, however, that they explore other options just to be sure.”
The options recommended by Gott’s organization include long-term care insurance, critical illness insurance, life insurance or annuities with long-term care riders, and other solutions ranging from health savings accounts to Medicare supplement plans.
About ACSIA Partners LLC: ACSIA Partners serves organizations as well as families. The company is also a co-founder and sponsor of the “3in4 Need More” campaign which encourages Americans to form a long-term care plan.