487 / Are premiums paid for a qualified long-term care insurance contract deductible as medical expenses?

IRC Section 213(a) allows a deduction for the unreimbursed medical expenses paid during the tax year of the taxpayer (plus his or her spouse and dependents) which exceed 7.5 percent of the taxpayer’s adjusted gross income (AGI). The 7.5 percent threshold was made permanent in 2020.

For the purposes of this section, the following are considered medical expenses:

Amounts paid for qualified long-term care services (per 7702B(c)); subject to the exceptions below.

Amounts paid for any qualified long-term care insurance contract (defined by 7702B(b)); subject to the limits described as “Eligible Premiums” below.

Planning Point: The table above was established in 1997 and is indexed for inflation. The limits rise by a medical care cost adjustment, rounded to the nearest $10, based on changes in the medical care component of the CPI (C-CPI-U for tax years beginning after 2017) each August. Although the limits are fairly modest in relation to an average premium, producers should remember that 1) the limits rise each year, and 2) the limits effectively rise every 10 years as a policyholder ages through the bands. Thus, the tax advantage grows over time.

An amount paid for qualified long-term care services as defined in IRC Section 7702B(c) ( Q 477) will not be treated as paid for medical care if a service is provided by an individual’s spouse or a relative (directly or through a partnership, corporation or other entity) unless the service is provided by a licensed professional. A relative generally is any individual who can be considered a dependent under the IRC.¹ In addition, a service may not be provided by a corporation or partnership that is related to an individual within the meaning of IRC Sections 267(b) or 707(b).²