Form 1099 - LTC

Help. Invalid taxpayer pays a lot for home care. He got a Form 1099-LTC showing $36000 in Gross Long-Term Care Benefits. I would think this would have to reduce the amount of home care he deducts as a medical expense. But the instructions seem to read that the benefits are excluded from income? I will keep researching tomorrow, late night now, eyes are beat. If anyone can provide any insight they may have with this I would appreciate it. Thanks in advance.

Reimbursements reduce the deduction.

viewtopic.php?f=8&t=11507&p=105543&hilit=8853#p105543

If TP received reimbursement then deduct from medical expenses.
Or did this all go through an agency and he only paid the difference?

The 1099-LTC amount was paid as a reimbursement for expenses he paid out-of-pocket.

But there is this information everywhere I read that the 1099-LTC amount is excludable from income. Yet I have seen responders here and elsewhere say, it must reduce the medical expense on the Schedule A. So if you do that, then you in essence are NOT excluding it from income?

The logic says to offset the Schedule A amounts paid for the care out-of-pocket. But I want to get it right, do not want problems later down the road.

If the amount is less than expenses, it's excluded from income. The Schedule A deduction is reduced by this amount. I believe it's form 8853.

It is 8853.

I read instructions to Form 8853. Sounds like, for LTC contracts, only per diem recipients fill out Form 8853. I don't see anything that suggests amounts received from the insurance contract that are identified as reimbursements, that exceed actual expenses, should go on this form.

I still can't find anything specific about reducing expenses by the contract proceeds that are for reimbursements, but logic sure dictates otherwise. I will keep a looking!

It's treated the same as medical insurance reimbursement. If you get reimbursed for medical expenses, you cannot deduct those medical expenses. You can only deduct nonreimbursed expenses.
When you get a check from the medical insurance company it is not taxable income.

I think this is a basic concept and that's why you can't find it spelled out anywhere.

I read instructions to Form 8853. Sounds like, for LTC contracts, only per diem recipients fill out Form 8853. I don't see anything that suggests amounts received from the insurance contract that are identified as reimbursements, that exceed actual expenses, should go on this form.

I still can't find anything specific about reducing expenses by the contract proceeds that are for reimbursements, but logic sure dictates otherwise. I will keep a looking!

Look at the flowchart in the form 8853 instructions. That will tell you if you need to report anything on the tax return. Most "qualified" plans disbursements will be tax free; if they pay per-diem, a portion could be taxable.

As a follow up to this thread, I just completed revising past returns for a similar case. Since the time I filed original returns, there have been reimbursements. Example: Clients were reimbursed for 21 expenses in 21 and 22. The 1099-LTC forms all had only box 3 checked (reimbursements). I divided out the reimbursements for the portion of these expenses that were deducted on the 2021 return and treated them as an "Itemized Deduction Recovery" and put on a 2022 return as income (Line 8, Schedule 1). The portion remaining is NOT income and is NOT a deduction on the 2022 return.

Femember that the taxable portion included in income on the 2022 is reduced if the recovered amount is more than the difference in the actual itemized amount on the original 2021 return and that year's standard deduction.

Unfortunately, adding income in the subsequent year instead of amending the prior year to reduce the ID number can have nasty results (such as when the prior year tax was zero with or without the reduction of ID for reimbursements in the following year.) I currently am working on the 2022 return knowing that almost all of the deductible assisted living expenses will be reimbursed. My client has been reimbursed over $180K in 2023 for expenses going back to 2021. I am working to NOT deduct any of these expenses on the 2022 return (or 2023 next year) including future reimbursed payments so I can avoid this poor situation for my clients.

Unfortunately, adding income in the subsequent year instead of amending the prior year to reduce the ID number can have nasty results (such as when the prior year tax was zero with or without the reduction of ID for reimbursements in the following year.) I currently am working on the 2022 return knowing that almost all of the deductible assisted living expenses will be reimbursed. My client has been reimbursed over $180K in 2023 for expenses going back to 2021. I am working to NOT deduct any of these expenses on the 2022 return (or 2023 next year) including future reimbursed payments so I can avoid this poor situation for my clients.

Recoveries are only taxable to the extent they resulted in a tax benefit in the prior year. In the bolded example above there would likely be no taxable recovery. You may want to review your calculations. Pub 525 has a pretty good discussion of this starting on page 24.

https://www.irs.gov/pub/irs-pdf/p525.pdf

Rick