I was advised by my financial planner that I can still take a medical deduction for long term care premiums even if those premiums are paid via a 1035 (non-taxable) transfer directly from a non-qualified annuity to the long term care insurer that is in the same company as the annuity. There are no 1099s issued for these transactions. IRS Pub 502 seems to state that the payments cannot be used as medical deductions because they were paid with distributions that would otherwise have been included in income. My planner said the difference is that my annuity is not a "retirement annuity" but is listed as a personal account. Any opinion?
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:
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:
If my LTC premiums were paid by a 1035 exchange, and the 1099-R indicates that it is a 1035 exchange, would it be possible to opt to include the gains portion of the distribution as income, and then use the total distribution amount as a LTC premium deduction by itemizing? In other words, does the 1099-R designation as a 1035 exchange take away the option to include the gain portion as taxable income and then taking the whole distribution as a deduction?