You've done your homework and your research is right! You cannot deduct the Long Term Care insurance premiums paid via the 1035 exchange. When you elect to pay for your Long Term Care premiums this way, you are getting a tax-free benefit on any gains from your non-qualified annuity - which by the way would not be allowed if it was held in a retirement account.
It's often recommended to see which tax benefit is greater:
- Pay for your LTC premiums via a 1035 exchange, which results in any gain being tax-exempt. Or,
- Take a distribution from your annuity and pay the tax due. Here, you'll then be able to take a deduction on your federal and possibly state income tax returns for the LTC premium paid.
