One huge expense that awaits a large percentage of Americans near the end of their lives is long-term care. Coming up with the money to pay for a nursing home, an assisted living facility, or other such care isn’t always easy. What many seniors and their families don’t realize, though, is that there are tax deductions they can take advantage of that would give them extra money to help with long-term care expenses. Tax-advantaged ways are available to exit out of a no longer needed life insurance policy, which could help solve some these financial challenges.
Some of those potential tax deductions or strategies for seniors include:
Costs of senior living and long-term care. If you’re diagnosed as chronically ill, some long-term care expenses can be tax deductible. Those expenses need to be more than 7.5 percent of your adjusted gross income, though. So, what constitutes “chronically ill”? You must be diagnosed and under a certified care plan issued by a doctor or nurse that addresses your inability to perform two or more activities of daily living, or you need to be suffering from cognitive impairments. Family members may also be entitled to tax deductions if they are financially contributing to the costs of care for a loved one and qualify as a dependent.
Long-term care insurance premiums. Owners of long-term care insurance policies can take tax deductions on premiums they pay for on qualified plans as well as other reimbursed medical expenses such as Medicare premiums—as long as the premiums are greater than 7.5 percent of adjusted gross income.
Estate tax changes and life insurance. Many large life insurance policies were purchased over the years as a wealth and legacy-preservation strategy to offset the impact of estate taxes, Orestis says. Prior to tax reform, the first $5,490,000 of an estate’s value was exempt from the estate tax. Now that has been nearly doubled to $10 million. That means life insurance policies currently in force to protect estates valued below the new level are no longer necessary, presenting a chance for the policy owner to sell the policy and recoup some or all of their premium payments under more advantageous tax conditions.
An accountant or financial professional can provide more details about whether you’re eligible to take advantage of any of these deductions or strategies.
The important thing to remember is that if you’re facing long-term care or other retirement expenses that seem to be more than you can handle, you may have options you hadn’t thought about. Knowing the tax rules and how they apply to your personal situation can make a huge difference.
Chris Orestis is an Executive Vice President of GWG Life (www.gwglife.com) and author of the books Help on the Way and A Survival Guide to Aging.