Yes, if you itemized deductions, and received a tax benefit, you will add it back as a recovery. The refund is included in the beneficiary's gross income and is taxable, to the extent it was either excluded from the owner's income or deducted by the owner. It must be included as income in the year it is received.
If you took a deduction for your long term care premiums as a medical expense in previous years (Schedule A itemized deductions), you need to report it as a "reimbursed deduction from a prior year. If you did not take the deduction, it is not taxable income.
Here is how to enter it in TurboTax:
Go to Wages & Income/Personal Income
Scroll to the last section, Less Common Income
Start next to last item, Miscellaneous Income
Start next to Reimbursed deductions from a prior year
Select Reimbursed Medical Expenses
Enter the amounts.
Please see this community discussion & Best Answer regarding this type of income. If you did not take a tax deduction for the after-tax premiums, and the surrender value is more than the premiums you paid, the difference is taxable as a long term capital gains. If the surrender value is less than the premiums you paid, you have a nondeductible (personal) loss.
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