What to do if Congress kills the medical deduction

Key Points
  • Premiums for long-term-care insurance count toward the current deduction threshold (10 percent of adjusted gross income) for medical expenses.
  • Depending on your age and the dollar amount of your monthly payments, you could squeeze out a higher deduction on your 2017 taxes if you prepay.

Retirees with long-term care insurance might want to consider prepaying at least some of next year's premiums if they expect to write off health care costs on their 2017 tax returns.

If the deduction for medical expenses disappears as proposed in the House Republicans tax bill, the ability to write off long-term care premiums would end after this year.

As it stands, medical expenses must exceed 10 percent of your adjusted gross income for you to claim the deduction. Even then, it's only the portion in excess of that threshold that is actually deductible.

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"By nature of the limitation, you have to have significant medical expenses to begin with to get any deductibility," said Michael Eagan, a tax manager at New York accounting firm Berdon.

And while not every out-of-pocket health-care expense counts as deductible, long-term care insurance premiums do, with age-based caps on how much you can deduct yearly (see chart below).

longtermcare premiums ded OBRIEN

Age before the close of 2017 Limitation on premium deduction
40 or less$410
More than 40 but not more than 50$770
More than 50 but not more than 60"$1,530 "
More than 60 but not more than 70"$4,090 "
More than 70"$5,110 "

Source: Internal Revenue Service

For people whose total annual premiums are below their age-based limit, prepaying a few months' worth of 2018 premiums in advance would let them use more of the full value available to them this year, when they know the federal deduction still exists.

"But I wouldn't prepay more than a few months," Eagan said.

Basically, projecting your situation with certainty beyond that would be difficult. And, you'd need to check with your insurer to make sure you are allowed to prepay premiums.

Long-term care insurance covers services like help with routine daily living activities — i.e., bathing, dressing, getting in and out of bed — that are not covered by regular health insurance, including Medicare.

People accelerate certain expenses all the time so they can take the deduction in a certain year.
Michael Eagan
tax manager with New York accounting firm Berdon

The average price for the insurance depends on your age and the level of coverage. A typical couple who are both age 60 pay about $100 to $150 a month for each policy, according to data released earlier this year by the American Association for Long-Term Care Insurance.

In that case, the total annual outlay would be $2,400 to $3,600. With the cap for 60-year-olds at $4,090 per person, a few months of 2018 premiums would give them a bigger tax break — again, assuming they are using the medical expense deduction.

It's also worth noting that some states now allow tax deductions for long-term care premiums, even if the federal government ends up doing away with it.

Also, if your medical expenses are close to the 10 percent-of-income threshold, you can potentially make other medical-related purchases in 2017 if you know they would qualify for the deduction.

"People accelerate certain expenses all the time so they can take the deduction in a certain year," Eagan said.

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