CHAPTER 16
CHRONIC ILLNESS COSTS AND INSURANCE
§ 16.01 Overview of Tax Treatment of Chronic Illness Costs and Insurance
-----[1] Long-Term Care Expenses
-----[2] Long-Term Care Insurance Premiums
-----[3] Long-Term Care Insurance Benefits
-----[4] Life Insurance Used for Costs of Chronic or Terminal Illness
-----[5] Limitation on Nontaxable Payments for Chronic Illness
-----[6] Retirement Community Medical Deductions
§ 16.02 Long-Term Care Expenses and Insurance
-----[1] Deduction for Long-Term Care Services
----------[a] Long-Term Care Services Defined
---------------[i] Differences Between Long Term Care Services and Other Medical Deductions
---------------[ii] The “Services” Limitation
---------------[iii] Maintenance or Personal Care Services
---------------------[A] Maintenance or Personal Care Services Broadly Defined
---------------------[B] Medical and Non-Medical Supplies
---------------------[C] Meals in the Home
---------------[iv] Meals and Lodging for In-Home Caregivers
----------[b] Chronically Ill Individuals
----------[c] Long-Term Care Provided by Related Parties
----------[d] Care in Assisted Living, Dementia, or Skilled Nursing Facilities
---------------[i] Assisted Living, Dementia, and Skilled Nursing Facilities Defined
---------------[ii] Deduction of Fees as Medical Expenses
---------------[iii] Classification of Fees as Cost of Long-Term Care Services
----------[e] Overall Limitations on Medical Expense Deductions
-----[2] Qualified Long-Term Care Insurance
----------[a] Requirements of QLC Contracts
----------[b] Deduction for Insurance Premiums
---------------[i] Annual Dollar Limitation on Deduction
---------------[ii] Premiums Paid by a Self-Employed Individual
---------------[iii] QLC Insurance Provided Under Employer Plans
----------[c] Taxation of Insurance Benefits
----------[d] QLC Insurance as Part of Life Insurance or Annuity Contracts
----------[e] Tax-Free Exchanges Involving QLC Insurance Contracts
-----[3] Life Insurance Used for Costs of Illness
----------[a] Taxation of Life Insurance Proceeds in General
----------[b] Life Insurance Payments Received for a Terminal Illness
----------[c] Life Insurance Payments Received for a Chronic Illness
----------[d] Business-Related Life Insurance Payments
-----[4] Limitation on Nontaxable Payments for Chronic Illness
----------[a] Applicability and Overall Computation of the Limitation
----------[b] Computation Periods and Methods
---------------[i] Choice Between Equal Payment Rate Method and Contract Period Method
---------------[ii] The Equal Payment Rate Method
---------------[iii] The Contract Period Method
----------[c] Sensitivity of the Designated Methods
----------[d] Comparison of the Two Computational Methods
----------[e] Multiple Recipients of Periodic Payments
§ 16.03 Continuing Care Retirement Communities
-----[1] Types of Continuing Care Retirement Communities
-----[2] Independent Living Units (ILUs)
-----3] Guidance Provided by Baker v. Commissioner
----------[a] The Facts of the Baker Case
----------[b] The Threshold Issue
----------[c] Application of the Percentage Method
----------[d] The Elements of the Computation
---------------[i] Total Adjusted Expenses
---------------[ii] Adjusted Medical Expenses
---------------[iii] Depreciation of Facilities, Equipment, Etc.
---------------[iv] Interest Expense, Debt Service, and Debt Issue Cost
---------------[v] Medicare, HMO, and Other Billings for Noncontract Patients
---------------[vi] Expense Allocations to Medical Facilities and Medical Operations
---------------[vii] Use of the Medical Percentage to Compute the Medical Deduction
-----[4] Some Problems with the Baker Case
----------[a] Inclusion of Expenses Offset by Other Revenue Sources
----------[b] Discount Available Upon Transfer to the ALF, SNF, or ADF
----------[c] Use of Multiple Year Experience of a Comparable CCRC
-----[5] Tax Planning for CCRCs and Residents
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CHRONIC ILLNESS COSTS AND INSURANCE
§ 16.01 Overview of Tax Treatment of Chronic Illness Costs and Insurance
-----[1] Long-Term Care Expenses
-----[2] Long-Term Care Insurance Premiums
-----[3] Long-Term Care Insurance Benefits
-----[4] Life Insurance Used for Costs of Chronic or Terminal Illness
-----[5] Limitation on Nontaxable Payments for Chronic Illness
-----[6] Retirement Community Medical Deductions
§ 16.02 Long-Term Care Expenses and Insurance
-----[1] Deduction for Long-Term Care Services
----------[a] Long-Term Care Services Defined
---------------[i] Differences Between Long Term Care Services and Other Medical Deductions
---------------[ii] The “Services” Limitation
---------------[iii] Maintenance or Personal Care Services
---------------------[A] Maintenance or Personal Care Services Broadly Defined
---------------------[B] Medical and Non-Medical Supplies
---------------------[C] Meals in the Home
---------------[iv] Meals and Lodging for In-Home Caregivers
----------[b] Chronically Ill Individuals
----------[c] Long-Term Care Provided by Related Parties
----------[d] Care in Assisted Living, Dementia, or Skilled Nursing Facilities
---------------[i] Assisted Living, Dementia, and Skilled Nursing Facilities Defined
---------------[ii] Deduction of Fees as Medical Expenses
---------------[iii] Classification of Fees as Cost of Long-Term Care Services
----------[e] Overall Limitations on Medical Expense Deductions
-----[2] Qualified Long-Term Care Insurance
----------[a] Requirements of QLC Contracts
----------[b] Deduction for Insurance Premiums
---------------[i] Annual Dollar Limitation on Deduction
---------------[ii] Premiums Paid by a Self-Employed Individual
---------------[iii] QLC Insurance Provided Under Employer Plans
----------[c] Taxation of Insurance Benefits
----------[d] QLC Insurance as Part of Life Insurance or Annuity Contracts
----------[e] Tax-Free Exchanges Involving QLC Insurance Contracts
-----[3] Life Insurance Used for Costs of Illness
----------[a] Taxation of Life Insurance Proceeds in General
----------[b] Life Insurance Payments Received for a Terminal Illness
----------[c] Life Insurance Payments Received for a Chronic Illness
----------[d] Business-Related Life Insurance Payments
-----[4] Limitation on Nontaxable Payments for Chronic Illness
----------[a] Applicability and Overall Computation of the Limitation
----------[b] Computation Periods and Methods
---------------[i] Choice Between Equal Payment Rate Method and Contract Period Method
---------------[ii] The Equal Payment Rate Method
---------------[iii] The Contract Period Method
----------[c] Sensitivity of the Designated Methods
----------[d] Comparison of the Two Computational Methods
----------[e] Multiple Recipients of Periodic Payments
§ 16.03 Continuing Care Retirement Communities
-----[1] Types of Continuing Care Retirement Communities
-----[2] Independent Living Units (ILUs)
-----3] Guidance Provided by Baker v. Commissioner
----------[a] The Facts of the Baker Case
----------[b] The Threshold Issue
----------[c] Application of the Percentage Method
----------[d] The Elements of the Computation
---------------[i] Total Adjusted Expenses
---------------[ii] Adjusted Medical Expenses
---------------[iii] Depreciation of Facilities, Equipment, Etc.
---------------[iv] Interest Expense, Debt Service, and Debt Issue Cost
---------------[v] Medicare, HMO, and Other Billings for Noncontract Patients
---------------[vi] Expense Allocations to Medical Facilities and Medical Operations
---------------[vii] Use of the Medical Percentage to Compute the Medical Deduction
-----[4] Some Problems with the Baker Case
----------[a] Inclusion of Expenses Offset by Other Revenue Sources
----------[b] Discount Available Upon Transfer to the ALF, SNF, or ADF
----------[c] Use of Multiple Year Experience of a Comparable CCRC
-----[5] Tax Planning for CCRCs and Residents
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| Copyright © 2005-2009 by Vorris J. Blankenship All Rights Reserved |
The author intends that this website provide accurate and authoritative information on the subject
matter covered. However, the information provided on this website is not a substitute for the advice of
an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
matter covered. However, the information provided on this website is not a substitute for the advice of
an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
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