Lloyd is chronicallyill and received taxqualified longterm c

Lloyd is chronically-ill and received tax-qualified long-term care insurance benefits in 2018 amounting to $8,000 to cover a 30-day nursing home stay. What amount, if any, must he include in income if actual nursing home costs for the 30 days amounted to $7,500 and the applicable per diem limitation was $360?

Solution

A qualified Long Term Care Insurance (LTCI) contract is treated as an accident and health insurance contract. Thus, amounts/benefits received under such a contract are treated as amounts received for personal injuries and sickness and so, such amounts/benefits are not taxable subject to per diem limitation.

The amount of your LTCI benefits that is excluded from taxation in a given period is figured by subtracting the amount/ benefit received for the cost of qualified long-term care services during the period from the larger of the following amounts:

Deducing from the above whether the benefit is taxable or not inthe given question:

A. Amount of benefit received from the insurer/contract = $8,000

B. Larger of the following = $10, 800

Actual cost = $7,500

per diem limitation for 30 days = $360 X 30 days = $10,800   

From the above it is concluded that the entire benefit received is excluded from the taxation.

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