Long-term care costs and taxes are financial stressors in retirement.
You are getting older.
Your age says this is true, as confirmed by the increasing number of candles on your birthday cake.
Your body reminds you of this fact, too.
Long-term care costs are coming, if they are not already here.
One more expense to add to your bills and your tax responsibilities.
There may be some good news.
According to a recent Kiplinger article titled “Deduct Expenses for Long-Term Care on Your Tax Return,” you may be able to receive a tax deduction on some long-term care expenses.
You could include medical expenses and eligible expenses for assisted living, in-home, or nursing home care.
To be eligible, certain requirements must be met.
What are these requirements?
A given expense must be medically necessary.
It can include personal care, preventative care, therapeutic treatment, rehabilitative treatment, and other services.
You may be able to include meals and lodging at a live-in facility, if the primary reason for being there is qualified medical care.
You must also be chronically ill and the care must be prescribed by your licensed health care practitioner.
What constitutes chronically ill?
You must require help in two daily living activities for at least 90 days.
Daily activities include tasks like bathing, toileting, transferring, dressing, or eating.
It may include cognitive impairment, if you require supervision for your safety and health.
You will need the condition to be certified in writing within the past twelve months.
What must you do to claim these deductions?
You will need to itemize you tax return.
To qualify, the expenses must exceed 10 percent of your adjusted gross income.
If your adult children are providing care, can they receive a tax deduction?
They can if they are able to claim you as a dependent.
Can you receive a deduction if you have long-term care insurance?
You can receive a limited deduction for certain long-term care insurance premiums.
You will follow the same itemization steps and have the same adjusted gross income requirements as with the qualified expenses.
There are limits regarding the types of insurance and the age of the insured as there is an age cap.
The insurance can only cover long-term care costs.
What does this mean?
Hybrid policies do not qualify.
You must have a traditional policy.
Although these deductions likely will not prove helpful until you reach your 70s, it is important to understand your options and to plan accordingly.
Make sure you consult with your CPA every step of the way.
Reference: Kiplinger (September 4, 2019) “Deduct Expenses for Long-Term Care on Your Tax Return”