This question was asked by STARMAN99 in June of 2019, and was answered by CarolC. She suggested to see whether claiming the distribution as income and then taking the medical deduction is more beneficial than asking the funds in a 1035 exchange tax-free.
My question expands on this to see if I have any options if the 1035 exchange was already made.
If my LTC premiums were paid by funds from a non-quaified annuity, and the 1099-R indicates that it is a 1035 exchange, would it be possible to still 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?
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Once you received the Form 1099-R with code 6 and $0 as taxable in box 2a, indicating a nontaxable 1035 exchange, you cannot change it. You would have to contact the issuer.
Also, keep in mind that an additional taxable income will increase your AGI and therefore reduce how much of your medical expenses are deductible.
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