Return of premium (non-forfeiture) benefits:
- Available only upon total surrender or death.
- May not be borrowed or pledged.
- Included in gross income to extent of any deduction or exclusion allowed with respect to premium.
Tax Deductible Out-of-Pocket Expenses
Generally, any long-term care expense paid out-of-pocket may be claimed as a medical deduction on a federal income tax return. The only exception is payment for home care provided by a family member who is not a licensed health-care professional.
Hybrid Long-Term Care Insurance Tax Deductions
LTC benefits paid from a Tax-Qualified (7702B) annuity or life insurance “linked benefit” plan are tax-free as noted above.
Cash surrenders from a LTCI linked-benefit plan that paid LTCI benefits may have a reduced cost-basis.
Premium payments for annuity or life insurance benefits in linked-benefit LTCI plans are NOT deductible.
(Separate TQ LTCI continuation rider premiums may be deductible.)
Source: IRC §213(a), 213(f) IRS Revenue Procedure 2023-34 (more info)
This material is for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. ACACIA Insurance Services, Inc. and our affiliated licensed professionals, do not provide tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisors.