Writing Off Long-Term Care Costs

The cost of long-term care is skyrocketing. Nationwide in the United States, the bill for one year in a nursing home can run from $50,000 to as much as $120,000, depending on the area in which you live. Medicare pays little or none of the costs involved in this type of care. If Medicaid pays for your care, then you have had to spend down your assets to the point where you have no assets to spend.

There is, however, some relief for the expenses of long-term care and the tax laws can help.

Medical Expense Deductions

For the people who are chronically ill, long-term care bills are considered deductible medical expenses as long as they exceed the 7.5% AGI or adjusted gross income. Long-term care insurance is also deductible as part of this expense. Deductible costs include the following:

Strategic Tax Planning

If you can afford to pay your own long-term care expenses, tax considerations should influence which assets you use to do so. The best choice would be to use your traditional IRA monies first. The cost of long-term care can offset most, if not all, of the taxes that you will be obligated to pay.

An additional beneficial strategy is to pre-pay or pay ahead if the current yearly amount is less that 7.5% of adjusted gross income (AGI). This could help in effective tax planning at year-end.

Paying for a Parent's Care

If you claim your parents (or parent) as dependents, or if your parents' income exceeds the exemption amount, you can treat long-term care expenses you pay, on their behalf, as part of your own medical expenses. This strategy can also help if your parents live in a nursing home or assisted living facility and you pay their expenses. The deduction is yours to claim, but keep accurate records and receipts.

The Role of Long-Term Care Insurance

Long-term care insurance was designed to protect families against the financial losses incurred when someone suffers from poor or failing health. Unless you are very wealthy and can afford high out-of-pocket medical expenses, it is advisable to purchase as much long-term care insurance as you can afford. Be sure the policies offer adequate coverage for at least three years, and cover both home care and facility care.

About Long-Term Care Policies

Ninety percent of the care provided occurs in people's homes, and of those receiving care, 40% are under the age of 65. The average nursing home stay is less than two years, due mostly to the fact that people can now stay at home longer than before.

The other nice feature of many long-term care policies is that they allow for a care coordinator to be consulted when organizing the type of care you will need. This is a vital service and everyone should take full advantage of it. Many care coordinators have great networks, and they can help you obtain many services that you may not even have known existed. The premiums paid on long-term care could be deductible from income taxes. If you are age 40 or under, your deductible premium limit is $250. If you're older than age 70, it is $3,130. There may also be a state tax break available to you for the cost of long-term care insurance. Each state is different, so ask your accountant.

Long-term care insurance can be costly. Premiums depend on your age when the policy is purchased, your health, daily or monthly benefit, terms and elimination periods. You should consult someone who really understands the products and how they work. Some financial planners and advisors have the CLTC (certified in long-term care) designation. These advisors took an intensive two-day course taught by an attorney and were required to pass a test in order to obtain their certification.

Your employer may offer long-term care coverage as an employee benefit. These policies offer many features, including portability, group discount rates, and payroll deduction. If you can enroll in these, take full advantage of them. They are a great starting point, and to give you the best coverage, additional insurance can be purchased from a private company.

Because it protects the monies you've saved over the course of your career, long-term care insurance complements your portfolio of financial products. Remember, we all have times of poor health and we all need care at some point of our lives. The best advice I can give someone considering long-term care insurance is to purchase coverage when you are healthy and can get the lowest rates.

To your good health.

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