Can I Deduct Premiums Paid for Long-Term Care Insurance?

Long-term care insurance typically becomes a consideration for people in their fifties and sixties after they experience helping out with their aging parents' care and realizing the substantial hit it can make on their life savings when there's no insurance in place. But one of the most overlooked aspects of long-term care insurance is the potential tax benefits. When considering this type of coverage, understanding the potential tax benefits and how they pertain to your own financial situation can help you make a more informed decision.

Hey there, and welcome to the Retired-ish podcast. Today, we're diving into one of the most asked and most misunderstood questions when it comes to planning for the future, which has to do with long-term care. And that question is, can I deduct the premiums I pay for long-term care insurance? I know insurance isn't exactly the most intriguing topic in the world, but trust me, once you hear how this could impact your taxes and potentially save you thousands, you might just find yourself itemizing your deductions again. This could even juice up your itemized deductions a little more if we end up getting some additional tax relief from the current administration, and they raise that pesky state and local tax cap, also known as the SALT cap. More on that later.

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We'll break down how the IRS looks at long-term care, the age-based deduction limits, the different types of long-term care policies, and how the tax deduction differs, and the one crucial rule that determines if your policy even qualifies. Spoiler alert, not all of them do. So grab your coffee, get cozy, and let's unravel the mystery of long-term care premiums and how they might just become your new tax BFF.

Put simply, you may be able to deduct premiums paid for qualified long-term care or LTC insurance. There are a few important rules and limitations involved. Don't worry. We'll get into what qualified means a little bit later. Why is there a tax deduction for long-term care insurance in the first place? Well, it's because the government knows it can't afford to subsidize long-term care services since they're ungodly expensive, and likely because they want to mitigate people from abusing the Medicaid program to pay for some or all of it.

So they provide a tax break to incentivize people to get their own insurance in the private sector. Let's break down how all of this works. The first thing to know is that long-term care premiums are considered a medical expense. For individuals, pretty much the only way to even potentially deduct most medical expenses on your taxes is to what we call itemize your deductions. You see, when people prepare their tax returns, everyone gets the option to use what we call the standard deduction or itemize their deductions. You pick one or the other, generally whichever will yield you the biggest tax benefit. The standard deduction amount is based on whether you file single, married filing jointly or separately, or as the head of household. In addition, there are larger standard deduction amounts if you are blind or 65 or older by the end of the tax year.

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The IRS tells us the standard deduction amounts each year, and it's essentially a free deduction that everyone gets to take advantage of. However, if it generates a bigger tax benefit for you, you can choose to itemize your deductions instead of taking the standard deduction. Itemized deductions are essentially a list of specific deductions you add up to see if they are greater than that standard deduction, and they consist of certain expenses that you incurred throughout the tax year. Those are medical and dental expenses, state and local taxes paid, state and local income taxes, or sales taxes. We've got state and local real estate taxes, so that includes primarily property taxes. We've got state and local personal property taxes, so the deductible portion of your DMV fees or for your vehicles, for example, mortgage interest paid, points paid when acquiring a mortgage, certain types of investment interest, gifts to charity, which is a big one, casualty and theft losses, and some others that are relatively rare. And while the list certainly has some hefty expense categories on there, the issue is that there are limitations and unique attributes that apply to almost all of those expenses. You don't just get to write down what you paid for all of those and call it a deduction.

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What we are here to focus on today is that first expense, which was the medical expenses, because that's where the long-term care premium deduction will reside for most individual taxpayers. When it comes to deducting dental and medical expenses, which include those qualified long-term care premiums, the very first hurdle is that you can only deduct the amount that is over and above 7.5% of your adjusted gross income, or AGI for short. For example, if your AGI is $80,000, 7.5% of $80,000 is $6,000. So, only medical expense amounts that you pay during the year that are above $6,000 are deductible and get added to some of those other itemized deductions on that list.

The second hurdle is that each tax year, the IRS puts a limit on the specific amount of qualified long-term care premiums that can be deducted as part of those medical expenses. This will depend on your age by the end of the tax year. These limits are per individual. So if you're married and both spouses pay for a long-term care policy, you each have your own limit. For 2025, the annual limits are $480 if you're 40 or younger, $900 if you're between the ages of 41 and 50, $1,800 if you're between the ages of 51 and 60, $4,810 if you're between the ages of 61 and 70, and $6,020 if you're age 71 and older.

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Again, you can only deduct up to these limits per individual, even if your actual premiums are higher and even if you have multiple policies on yourself. Here's another example. Let's piggyback off the last, and let's say that throughout 2025, you will reach age 61, and your AGI is going to be $80,000. You can only deduct medical expenses above $6,000 as a potential itemized deduction. The $6,000 again is 7.5% of 80,000, which is that AGI hurdle we have to meet. You pay $5,500 during the year in, let's say, health insurance premiums, dental premiums, and all other out-of-pocket medical and drug costs. You also pay, on top of that, $6,000 during the year in long-term care premiums. In this scenario, your first mark or hurdle that you have to meet is the 6,000, and you had $5,500 in the typical medical expenses, which left you short about $500. So, still can't deduct anything yet. That means once we add the $6,000 of long-term care premiums to that, you have a total of $5,500 in medical expenses that are over that threshold.
So, the math on that is the $6,000 in long-term care premiums minus the remaining $500 hurdle that you had to meet. So all of that $5,500 that was over consists of qualified long-term care premiums. However, the second hurdle comes in, which is the cap that is specific to long-term care premiums for a 61-year-old, which I'll remind you was $4,810 in 2025. Therefore, you're only eligible to deduct $4,810 of the $6,000 total you paid out of pocket in long-term care premiums, and that still is only if you itemize. Meaning, once you add that deduction to your other itemized deductions, the total has to be greater than your standard deduction in 2025. And this is for federal taxes only. You may get a different result on your state return, and you might even take a standard deduction on your federal return, but still get to itemize on your state return. But I digress.

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While you may not be able to deduct all of the premiums paid in this case, $4,800 isn't a bad tax deduction at all. Think of the tax savings that you get from this deduction as sort of a discount on your insurance. Now, the big kicker here that I want you to notice is the big jump in potential long-term care deductions once you reach the year in which you will turn age 61. The limit from ages 51 to 60 is $1,800 per year, while from 61 to 70, it jumps to 4,810. So, even if you're younger than 61 and only getting a relatively small deduction, you have bigger deductions to look forward to if your premiums are high enough. Make sure you keep that in mind when doing your tax planning for future years. Don't just ignore it if you look at the deduction and it looks really small, and you're like, it's not really worth it, it's not making much of an impact. If you're gonna be paying for those long-term care premiums for years to come, the deductions may potentially start to add up as well.

Here are the current issues when it comes to itemizing your deductions. Since the Tax Cuts and Jobs Act of 2017, we currently have a cap in place on how much of the state and local taxes we pay that can be deducted. The current cap is $10,000 per year, and many refer to this as the SALT cap that I mentioned earlier, which stands for state and local taxes. This cap or law, along with many other provisions of the TCJA, is set to expire on December 31, 2025. However, it may be extended or even changed to a different amount, and time will tell. We just don't know yet. The current talk is that it will be extended, but the administration wants the cap raised to some dollar amount that's higher than 10,000. Because of this cap, there are many taxpayers, especially high earners, who have been very limited in their itemized deductions.

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Paid $30,000 in state income taxes and another $9,000 in property taxes, living in California? Too bad. You can only deduct $10,000. There's your example. Not only that, but the standard deduction was increased dramatically. So when you add those two components together, many Americans just started taking the standard deduction for the last several years, and very little itemized, especially if they're married. The common argument, however, is that after retirement, income tends to drop. At the same time, your medical expenses often increase because more care is typically needed as you get into your later years. Therefore, you'd think that many American seniors are likely to start itemizing their deductions and can now deduct these expenses. But I have many clients in practice, or the real world, I call it, where they actually make a lot more in retirement than they did while working.

So go figure. So, itemizing currently can still be a tough hurdle if you want to deduct these premiums. However, if the SALT cap is eliminated, or at least lifted higher in the coming years, deductions for long-term care premiums you maybe couldn't take advantage of before might now be on the table. So, be sure to revisit this deduction with your tax professionals if and when we see more tax law changes.

Alright. The third hurdle you have to get through is making sure that the long-term care insurance you are paying for is considered qualified. What constitutes a qualified long-term care insurance contract? Well, the contract must be guaranteed renewable. It must not provide a cash surrender value or other money that can be paid, assigned, pledged, or borrowed.

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It must provide that any possible refunds of the policy can only be used to reduce future premiums or increase the benefits, and it generally cannot pay or reimburse expenses covered by Medicare, except as a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. A lot of that may have just sounded like complete gibberish to you. So you might be wondering, how do I know if my policy meets all of those conditions? Is there an easier way? The simple answer is that your actual policy should outline most, if not all, of those points, and if not, I would call a specialist at the actual insurance company to verify that it meets these qualifications. Here's a pro tip. Don't ask the agent that sold it to you. They likely don't know unless they are also a tax professional, get it straight from the source. And to get real nerdy with it, when asking, make sure they can clarify, preferably in writing, that the policy is intended to be a qualified long-term care contract under Internal Revenue Code IRC 7702b. And please, please know that just because you have a long-term care policy does not mean it meets these requirements. There are many policies out there that don't. So this is very important to know if you've been considering long-term care insurance and plan on shopping for some in the near future.

Another big factor in determining whether or not your policy may or may not be qualified depends on the type of policy you buy. Many what we call traditional long term care policies will be considered qualified, And these are the policies that are similar to most types of insurance you buy in life where you pay a premium, maybe monthly, maybe annually, and if something happens to you, you use the benefit that you've been paying for. If you don't end up needing it or at least not very many times throughout your life, you're out those premium payments out of pocket. It's use it or lose it. However, nowadays, many people are buying LTC insurance via other types of vehicles known as hybrid policies or asset-based policies. Essentially, these policies can be completely bought and paid for in a very short number of years, and they can be funded with other assets that you may have, even retirement assets in IRAs.

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This is different from those traditional policies because you're not just shelling out a premium, permanently, as long as you want the insurance. These can be literally bought and paid for in a short amount of years and then just sit there until you need them. Most are structured with multiple components, and one of those components is a life insurance policy. Then they add riders to those policies to allow for the long-term care benefits. And when retirement money is used, like, let's say, an IRA, usually an annuity of some sort is also part of the policy structure. Historically, these hybrid and asset-based policies were not structured properly to be considered qualified long-term care or to be able to use, let's say, your HSA to pay for the long-term care premiums tax-free. However, now there are a handful of insurance carriers that offer these types of policies where at least a portion of the premiums can be considered qualified long-term care premiums. And note that I said portion.

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These hybrid policies are structured so that the life insurance premium and long-term care premiums are distinctly separated, rather than you just paying one premium and you don't really know how much of that goes towards the death benefit for the life insurance and how much of it goes towards the long-term care benefit. They actually separate them, and you know the exact amount going to each. Since the premiums are separately identifiable, they can meet the definition of being tax-qualified under that Internal Revenue Code section 7702b. Therefore, the long-term care portion of the premium is eligible as an itemized deduction, or you can use a health savings account, or HSA, to pay for those premiums, again, up to the annual age limitations that we talked about earlier. It's also worth noting that although there are multiple insurance companies out there that offer similar hybrid and asset-based LTC products, some companies will have slightly different policy structuring than others, and that may affect the taxation of future withdrawals in tax reporting. So just keep that in mind. So that being said, if you are exploring getting long-term care coverage or even determining whether or not you need long-term care coverage in the first place, you should definitely speak to an experienced financial planner that understands the mechanics of the policies available as well as the tax ramifications.

What about business owners? Whether you're still operating a business actively, or you're semi-retired or Retired-ish and still own an active business, there can be big deductions to be had if you do it right. Put simply, the deductibility of long-term care premiums are even easier to deal with and more generous if you own a business. If you are self-employed and had a net profit for the year, you may be able to deduct amounts paid for qualified long-term care insurance for yourself and even a spouse. You are considered self-employed if you were a sole proprietor, so you're out there on your own, just running a side hustle, and you have no formal or legal structure. You can be a general partner in a partnership. You can be a limited partner getting guaranteed payments from a partnership, or you, let's say, received wages from an S corporation in which you were a more than two percent shareholder. And the deduction can't be more than your earned income from that trade or business, and this is crucial to understand. In other words, you can't be retired and, let's say, go run a lemonade stand with your grandchildren on the corner and make $400 for the entire year, and then deduct all of your long-term care premiums. You have to have enough income from the business to take the deduction you're trying to take.

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Sorry, the IRS is smarter than that. But if you already have a business, or you go on to create a side hustle in retirement, and you make enough, great. Now, you can partially offset that income with this long-term care premium deduction. Also, it's important to know that there are different ways you can structure those hybrid or asset-based policies we mentioned earlier for bigger tax benefits, depending on the type of business you have. For example, a sole proprietor or partnership versus purchasing the insurance when you have a corporation, let's say. The biggest benefit for the small business owner is how you actually deduct the premiums. Again, they have to be qualified long-term care premiums, but they don't have to be an itemized deduction subject to that 7.5% hurdle. Instead, they can be taken up to the age limitations that we talked about earlier, as what we call an adjustment to income on your tax return.

In layman's terms, that just means no itemizing deductions are required, and adjustments to income are considered above-the-line deductions, which, put simply, can actually reduce your AGI and help you qualify for other tax deductions. All in all, for business owners, this is pretty awesome stuff. Again, if you're a business owner considering long-term care insurance, reach out to a competent professional for some guidance.

Last but not least, when can't you deduct your long-term care premiums? Here are a couple of scenarios where you generally won't be actively deducting premiums for your long-term care insurance. One, you can't deduct the amount of any premiums that exceed those annual age limits that we discussed earlier. Two, you can't double-dip and deduct them as an itemized deduction or adjustment to income as a business owner if you paid for the premiums with money from your health savings account or a cafeteria plan at work. Number three, it should go without saying, but you can't deduct premiums for non-qualified policies. Remember, not all policies are qualified.

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And number four, this is common for local, county, or state retirees. You can't deduct long-term care insurance if you elected to pay the premiums with tax-free withdrawals from certain retirement plans, where these distributions would otherwise have been included in income. To put that in layman's terms, for example, the county you worked for, let's say, may have a special medical trust that they funded for you while working that works similar to an HRA or an HSA. And when you retire, you decide to use funds from that account to pay for your premiums. That is the easiest example. And lastly, you can't deduct the long-term care premiums if you use an HSA, otherwise known as a health savings account, to pay for the qualified LTC premiums directly, or you reimburse yourself from an HSA after paying for the premiums out of your own pocket. And just note that if you are utilizing an HSA to pay the premiums, you can only get the tax-free withdrawal from the HSA up to the annual limits based on your age. You can even use funds from your HSA to pay for your spouse's qualified LTC premiums. So, using an HSA to pay the premiums is still very valuable, even though you won't be deducting it as an itemized deduction, because it still allows you to use that money and get that tax-free withdrawal.

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That does it for today's show. If you find the topic discussed today actionable and insightful, do yourself a favor and subscribe to or follow the show on your podcast app. That way, you can get alerts each time a new episode drops. Also, be sure to check out our free Retired-ish video newsletter to get more useful information on retirement planning, investments, and taxes once a month straight to your inbox. The newsletter will often dive deeper into some of the topics discussed on the show, as well as useful guides and charts available for download. For those of you interested in the basics of long-term care insurance and you want to learn more about it, we have a series of previous episodes about the different components of long-term care with my dear friend and long-term care expert, Eileen Dunn. I will make sure to include a link to those episodes in today's episode description and the show notes, so be sure to check that out. As always, you can find the links to the resources we've provided in the episode right there on your podcast app, or you can head over to retiredishpodcast.com/68. Thanks again for tuning in and following along. See you next time on Retired-ish.

Disclosure [00:26:06]:

Cameron Valadez is a registered representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

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Neither LPL Financial nor its registered representatives offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

Tax and accounting-related services offered through Plan-It Business Services DBA Planable Wealth. Plan-It Business Services is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax and accounting-related services.

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