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Coordination of Long Term Care Benefits with Medical Expenses

Hi Long Term Care Experts,

 

I am researching whether it is reasonable, acceptable and legal to deduct my mom’s assisted living expenses (care costs).  That is, a deduction that goes along with real estate taxes, donations, property taxes, etc.  The issue is that she had long term care insurance that provided per-diem benefits for ½ the year.  The company went bankrupt and her benefits expired (long story) at the end of June.  So, I am wondering about the deductibility of these expenses.

 

My mom’s long term care policy is qualified plan.  She has chronic conditions.  She receives assistance like bathing, dressing, etc.  Her benefits do not exceed per-diem limits.  Her assisted living facility costs include both care costs and rent.  Turbo-tax will conclude that as long as per-diem benefit limits are not exceeded then the benefit payments are not taxable, even with $0 costs.

 

So, my question is to what extent coordination of long term benefits and deduction of medical benefits required.  What is required by tax law?  I have spelled this out in equation below for clarity.  Clearly, Case 1 below is permissible if there were no long term care benefits in the picture.  Case 2 is what I had assumed up until recently with long term benefits involved but I am suspecting that Case 1 is actually permissible (where there is no coordination between long term care payments and medical expenses).  This coincides with my thought that long-term care contracts are just a form of insurance.  You pay a company money for many years, and then they may pay you back on a per-diem basis if you happen to meet certain contractual requirements, i.e. being unable to perform certain activities of daily living.

 

Case 1:  Permitted medical expense deduction E = A + B where:

  • A = Medical expenses
  • B = Assisted facility care costs

Case 2   Permitted medical expense deduction F = A + B + C – D where:

  • A = Medical expenses
  • B = Assisted facility care costs
  • C = Assisted facility rent
  • D = Long term care benefit payments

PLEASE INCLUDE REFERENCE TO TAX CODE OR OTHER SUBSTANTIATION IN RESPONSE ... AS OPPOSED TO JUST YOUR STATED OPINION.  OTHERWISE, PLEASE REFRAIN FROM SENDING A RESPONSE.

 

Thanks

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