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Life Health > Health Insurance

Maximum Federal LTC Deduction Rises to $3,400

By Allison Bell

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The Internal Revenue Service has announced the new, inflation-adjusted amounts for certain items that taxpayers need to compute their 2005 federal income taxes.[@@]

The changes, described in Revenue Procedure 2004-71, affect tax breaks for long term care insurance premiums and health savings accounts.

The changes also affect the annual gift exclusion.

- LTC insurance premiums: The federal government lets taxpayers deduct a portion of individual LTC premiums from taxable income only if the taxpayers spend enough on health care to itemize their medical expenses.

Here are the increases in the amount of eligible LTC premiums that taxpayers can include in itemized medical care expenses:

IRS LTC Insurance Premium Deduction Limits

Attained age

2004 Limit

2005 Limit

40 or less

$260

$270

More than 40

$490

$510

More than 50

$980

$1,020

More than 60

$2,600

$2,720

More than 70

$3,250

$3,400

- LTC insurance payments: The daily limit on periodic payments received under a qualified LTC insurance contract has increased to $240, from $230.

- HSAs: For taxpayers who have HSAs, the minimum deductibles that will fit the government’s “high deductible health plan” definition in 2005 will be $1,000 for self-only coverage and $2,000 for family coverage.

The maximum HSA contribution will be $2,650 for individuals and $5,250 for families.

The maxium annual out-of-pocket expense for an HSA-compatible health plan, which includes co-payments and deductibles but not premiums, is $5,100 for self-only coverage and $10,200 for family coverage.

- The annual gift exclusion will continue to be $11,000 for most gifts to most people, but the exclusion will increase to $117,000, from $114,000, for most gifts to a spouse who is not a citizen of the United States.

The new revenue procedure, which was written by Marnette Myers of the IRS Office of Associate Chief Counsel, is on the Web at //www.irs.gov/pub/irs-drop/rp-04-71.pdf

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