Long-Term Care Tax-Deductibility and Annuities

To qualify for tax deductibility, medical expenses must exceed 7.5% of adjusted gross income. 1997 will mark the incorporation of certain long-term-care (LTC) service costs which will also qualify for deduction. These costs are for services associated with individuals who are certified as chronically ill. Part or all of LTC insurance premiums may also qualify.

To be eligible for the deduction, you, your spouse or dependent (or someone who meets all the tests of a dependent except for the gross income test) must be certified as chronically ill by a licensed medical practitioner.

This means he or she can't perform–without substantial assistance from another individual–two or more activities of daily living (ADL) for a period of at least 90 days due to a loss of functional capacity. ADLs include eating, toileting, bathing and dressing. The ability to move without help from, say, bed to wheelchair, is also an ADL. Those with severe cognitive impairment are also eligible.

Once a person is certified as chronically ill, out-of-pocket expenses for diagnostic, preventive, therapeutic, rehabilitative, maintenance and personal-care services are deductible.

If you have a big LTC deduction, reduce the likelihood of IRS queries by breaking out LTC costs from other deductible medical expenses. Include a note explaining that expenses were paid for a chronically ill person under Code Section 7702B(c)(2). Attach a copy of the certifying letter to your return.

Reprinted with permission of Kiplinger's Retirement Report, May 1997. The Kiplinger Washington Editors, Inc. Subscriptions: (800) 544-0155, $59.95/yr.