Volume 5 Issue 2008

Nursing homes and other long-term care arrangements are so expensive that many people are taking a closer look at buying long-term care insurance to protect themselves and their families — just in case.

The typical long-term care insurance policy will pay for custodial care after a waiting period has expired, reimbursing expenses up to a maximum limit specified in the policy. Eligibility for reimbursement usually hinges on the covered individual’s inability to perform several activities of daily living, such as bathing and dressing.

If you are thinking about buying long-term care insurance, you’ll be interested to know that, within limits, premiums paid for qualified policies are deductible as an itemized medical expense. Premiums are eligible for a deduction only up to a specific dollar amount (adjusted for inflation) that varies depending upon the age of the covered individual. The IRS limits for 2008 are:

Age - Premium Limit

• 40 or under - $310

• 41-50 - $580

• 51-60 - $1,150

• 61-70 - $3,080

• Over 70 - $3,850

These limits apply on a per-person basis. For example, a married couple over age 70 filing a joint tax return could potentially deduct up to $7,700 ($3,850 × 2). Keep in mind, however, that itemized medical expenses are deductible only to the extent that they, in total, exceed 7.5% of adjusted gross income (AGI).