Coordination/Allocation of Long Term Care Costs with Respect to LTC-1099 and Deduction of Medical Expenses

[Timoshenko]

Hi All Long-Term Care Experts,

I was wondering about being able to deduct the care costs of my mom's assisted living.  This includes costs such as bathing, dressing, medication management, etc.   She has chronic medical conditions.  Certainly, these are deductible as medical expenses when one does not receive long term care benefits.

However, when one does receive long term care benefits from a long-term care insurance policy, then I wanted to understand to what extent these expenses are still deductible.  One would think that they would not be deductible, particularly if long term care per-diem benefits exceed long-term care costs (including both care costs and room rent).  However, it seems this is not the case.  It seems that as long as the long term care plan is a qualified plan and as long as per-diem benefit limits are not exceeded, then it does not matter what the long term care costs are, i.e. they could taken as $0 or they could be taken as the rent cost or they could be taken as the cost of rent plus care costs.  In any of these cases, the long term care payments are deemed "not taxable".   

Given this, it seems that the care costs at my mom's assisted living could be deducted as medical expenses.  Seems like a bit of double-dipping but I can't find anything that would prohibit this deduction.  That's what I'm looking for.  Is there a tax requirement that prohibits?  I will say further, that in past years, I (via myself and my mom's accountant) have not taken this medical expense deduction thinking that it was double-dipping.  Now, that my mom's long term care benefits have expired (as of June 31 this year), I am thinking these deductions could have been taken in past years too.

Thanks much for your assistance.

[DavidD66]

You cannot deduct medical expenses or long term care expenses that you receive payment for from insurance, unless your expenses exceed the amount of your insurance benefits.  The fact that LTC benefits are considered non-taxable (up to certain limits) does not mean that the LTC expenses paid are tax deductible.  To the extent your expenses do not exceed your LTC benefits, those expenses are not deductible.  You cannot, as you say double dip.  You can deduct the cost of the LTC premiums if they are still being paid.  

As for there being something in the tax code that prohibits your deducting the medical costs that were paid for with LTC insurance benefits - there is not something specific that I am aware of.  Nor am I aware of anything that says you can.  Not every situation is addressed in the code or in an IRS Publication or Form Instructions.  But it is a general principal of the tax code that you cannot deduct as an expense something for which you are reimbursed, unless that reimbursement is also reported as income.  

[Edited 02-12-2024, 2:27 PM EDT]

[Timoshenko]

Hi David,

Thanks for your reply.  However, I would like to request more info.

Your first sentence seems to contradict what you say in your 2nd and 3rd sentences.  In the vein of not double dipping, I believe you are expressing that you can only deduct those health expenses (medical and long-term care and even long term care premiums) that exceed long term care benefits.

Again, this was my understanding/assumption up until recently where I started to question, but I am looking for something concrete that would indicate this.  Can you refer me to a portion of tax code that would substantiate?  Just for total clarity, here is an example of Turbo-Tax input:

1)  Enter 50k long term care benefits.

2)  Enter that it is qualified plan.

3)  Enter number of days 

4)  Enter long term care expenses as $0.

As long as the per diem limit is not exceeded ($50k / # of days) then long-term care benefits are deemed non-taxable by Turbo-Tax.  Noting that I question why Turbo-Tax asks you to enter long term care costs.

One can view this as long-term care expenses (care costs only) as NOT being allocated.  So, therefore, one would assume they are free to allocate medical expenses (specifically long-term care services where one example is personal care) as a medical expense deduction.   There is no warning about "coordination" of medical expense deductions with long term care payments in TurboTax.  Therefore:

5)  Enter $30k long-term care expenses in deductions and credits.

Turbo-tax accepts this as a deduction with no flags.

Again, I'm looking for something concrete that would indicate differently from this scenario ... rather than just taking your word for it.

After all, another way of looking at this ... from 1000ft level ... (to me) is that long-term contracts are just a form of insurance.  You pay them money for many years, and then they pay you back on a per-diem basis if you happen to meet contractual requirements, i.e. being unable to perform certain activities of daily living.  Where is there a requirement to "coordinate" long term care benefits with medical expenses in the tax code?

In conclusion, I need more detail.

If there are any others who could provide some further insight, feel free to chime in.

Thanks much.

[Timoshenko]

I would further note that this is complicated by the fact that Assisted Living Facilities include both "care costs" and "rent costs".  Long term care benefits are provided to theoretically cover both of these costs.  Medical expenses include "care costs" but not "rent costs".

[AmyC · Accepted solution]

Money paid with after tax dollars can be claimed as medical expenses. Patients in a nursing home may qualify to deduct rent but not assisted living. Here is the law regarding your questions.

Publication 502, Medical and Dental Expenses states:

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

You can't include medical expenses that were paid by insurance companies or other sources. This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services.

Nursing Home

You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.

Don't include the cost of meals and lodging if the reason for being in the home is personal. You can, however, include in medical expenses the part of the cost that is for medical or nursing care.

Long-Term Care

You can include in medical expenses amounts paid for qualified long-term care services and certain amounts of premiums paid for qualified long-term care insurance contracts.

Qualified Long-Term Care Services

Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are:

Required by a chronically ill individual, and

Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Chronically ill individual.

An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.

The individual is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.

The individual requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

Maintenance and personal care services.

Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with the individual’s disabilities (including protection from threats to health and safety due to severe cognitive impairment).

You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care.

[Timoshenko]

Thanks so much for this.

Perfect.  Exactly what I was looking for.

[Rhoder19]

If per diem benefits that do not exceed the allowed daily amount are not supposed to be taxable, doesn't reducing your medical expense by those same benefits received make them taxable by virtue of reducing your medical expense deduction?  Everything I've found says you must reduce your medical expenses by any REIMBURSEMENT received.  Per diem benefits are not reimbursement (look up the definitions in the dictionary), they are paid to the policyholder REGARDLESS of expenses incurred.  I've spent hours trying to find something definitive on this with no success.  Per diem benefits are daily benefits you receive for being chronically ill or otherwise qualifying to receive the benefits.  Reimbursement benefits are benefits received for having spent money on something.  There's a difference.

[Timoshenko]

Hi Rhoder19,

I'm with you on this but will add some perspective.

The per-diem benefits that my parents have received in the past involved paperwork (bills and care assessments) being sent to the long term care insurance company.  In turn, my parents received payments/benefits from the long-term care insurance company that showed the various costs (care costs, food/lodging, etc).  Generally, the per-diem benefits exceeded these costs.  However, the fact that they are sending statements in this manner does imply (in my mind) that these are covering (or reimbursing) these costs.  That said, I get your take on definition of reimbursement.  

The fact is that by not being able to take a medical deduction for these costs (if that is the case), it is an EFFECTIVE tax on the benefits.

I've already done my parents taxes and have neglected the so-called reimbursed costs so would have to file an amended return if you or someone else comes up with something definitive.

Not that it matters, but my mom's benefits have expired, which is a long story involving bankruptcy of long-term care company.

Thanks.

[AmyC]

If Box 3 is marked "Per Diem" (which will happen for policies that are considered Indemnity policies) then the amount you may exclude from taxable income being reported is limited.

Because benefits were paid on a per diem (indemnity) basis, without regard to the actual long-term care expenses incurred; the amount of benefits that may be excluded from income is subject to a daily maximum amount.

If this per diem (indemnity) limitation is exceeded, part of the benefits received may be taxable.  The limit increased in 2023 to $420/day; it's now slightly decreasing to $410/day in 2024.

Any taxable income received that is used on qualified medical expenses, can be claimed with other medical deductions. See Publication 502, Medical and Dental Expenses.

@Rhoder19 

[Timoshenko]

Amy,

Your response does not address the question at hand.

It is understood that any portion of long-term care benefits that exceed the per-diem limit are taxable.  

The issue at hand involves the deductibility of long term care expenses when qualified per-diem long term care benefits are received.  Rhoder19 takes the stance that long-term care benefits are not reimbursements ... I believe by virtue of the per-diem nature of the benefits themselves (the benefits are the same regardless of expenses).

Personally, I am trying to reconcile this with the statement "You can't include medical expenses that were paid by insurance companies or other sources" (Page 2 of Publication 502 "Medical and Dental Expenses")

Thanks.

[Rhoder19]

Timoshenko,

Thank you.  Wouldn't it be nice if IRS (or anybody) would DIRECTLY address this SPECIFIC set of circumstances rather than leaving it up to us to interpret their general statements that do not answer this question?

[Timoshenko]

Yeah, 

It's frustrating.

I might invite DavidD66 to respond to your post.  He was the one who provided "reinforcement" to the position that one cannot double dip, but I was a bit skeptical then and even more skeptical now.

Key assertions being that long term care benefits are not reimbursements and they are not "medical expenses paid by an insurance company", but rather they are contractual payments based on an insurance contract that are independent of medical expenses, not all that different from life or auto insurance.

Again, if long-term care benefits are considered reimbursements for medical expenses, then this amounts to EFFECTIVE taxation of those benefits by virtue of loss in medical expense deduction(s).

Thanks.

[Timoshenko]

Please see latest thread.

[jalo11700]

I understood all you said, no interpretation needed. The direct answer is, the 1099-LTC is not supported. It is up to the preparer to subtract the insurance from the qualified expenses. Typical US Government confusion and lack of support. Be glad they don't make cars!

[WTF170]

I know this is an old post but I ran across it looking for something else, and thought for the sake of your argument you might find this helpful. The Internal Revenue Code Section 7702B(a)(2) reads:

"amounts (other than policyholder dividends, as defined in section 808, or premium refunds) received under a qualified long-term care insurance contract shall be treated as amounts received for personal injuries and sickness and shall be treated as reimbursement for expenses actually incurred for medical care (as defined in section 213(d)),"

As far as it being taxation of the reimbursement because you can't deduct the expense, I don't think so. If you spend $100 on LTC and get reimbursed $100, then you have really spent $0 and so there's nothing to deduct.