Arizona Life and Health Practice Exam

Qualified long-term care premiums are treated for tax purposes as:

1. Fully tax-deductible

2. Tax-deductible to the extent they exceed 7 1/2% AGI

3. Taxable income for the insured

4. Non-deductible periodic payments

The correct answer is: Tax-deductible to the extent they exceed 7 1/2% AGI

Qualified long-term care premiums offer specific tax benefits under federal tax law. They are not fully tax-deductible in the same way some other expenses might be. Instead, they may be partially deductible, which is why the correct response indicates that these premiums are tax-deductible to the extent they exceed 7.5% of the taxpayer's adjusted gross income (AGI). This provision allows individuals who have high medical expenses, including long-term care premiums, to deduct only the portion of their total medical expenses that exceeds the 7.5% threshold of their AGI. It’s important for taxpayers to understand this limit so they can effectively plan their finances regarding potential long-term care costs. The notion that premiums could be fully tax-deductible or become taxable income for the insured does not align with how these premiums are treated, reinforcing why the other options do not apply in this context. Understanding this can aid in financial planning for those anticipating the need for long-term care, as they can potentially lower their taxable income based on their total qualified medical expenses.