We recently wrote about several ways the House GOP tax package could impact your estate plan. However, one area we did not cover is an important proposal that could impact millions of Americans: eliminating the medical expense deduction.
What Is the Long-Term Care Deduction?
The House plan proposes eliminating the deduction (codified in Title 26, Section 213 of the U.S. Code), which generally allows taxpayers to deduct medical expenses (including long-term care insurance premiums) for income tax purposes if the expenses are greater than 10% of adjusted gross income (AGI). But there is a cap on the amount you can deduct for long-term care premiums. The IRS recently announced that, for 2018, taxpayers age 40 and under can deduct a maximum of $420; taxpayers 70 and over can deduct a maximum of $5,200.
(You can see full tax rate tables and other IRS inflation-related adjustments for 2018 here.)
Of course, this deduction only applies to qualified long-term care insurance policies, so be sure to discuss the matter with your accountant or tax professional before claiming the deduction.
Who Uses the Deduction?
According to the IRS, approximately 8.8 million households -- or about 6% of tax filers -- claimed a medical expense deduction in 2015. The AARP estimates that 74% of those filers are 50 or older, and roughly half have annual incomes of $50,000 or less.
(Click here for the full AARP report on Medicare beneficiaries who spend at least 10% of their income on out-of-pocket medical expenses.)
Spouses, adult children, and some other individuals serving as caregivers can also claim the deduction under certain circumstances. By and large, though, the deduction is used by middle-aged or elderly taxpayers with limited assets and high medical expenses.
How Does this Change Affect Me?
Eliminating the medical expense deduction means more people will likely have to spend down their assets more quickly, forcing them to apply for Medicaid. Additionally, if you pay for your parents' care and qualify to claim the deduction, your tax bill may be affected, as you may no longer be able to claim the deduction for certain expenses. Click here for more information on how eliminating the medical deduction might affect you.
Get a Free Consultation
The tax plan proposes many changes that may affect your financial future. To discuss your estate plan or long-term care planning, contact the Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]