You Make the Call - Nov. 13, 2025

Question: Damiano, age 60, suffered a stroke and spent 180 days in a rehabilitation facility. He is unable to perform at least two activities of daily living while there, so he is treated as a chronically ill individual. His qualified long-term care (LTC) insurance policy has a 30-day waiting period, after which it pays 80% of the amount charged by the facility. The facility charges $150 per day for a total of $27,000. Will any or all of that amount be included in Damiano’s taxable income?

Answer: Of the $27,000 payment, the insurance company will pay $18,000 based on the actual costs times the number of days minus the waiting period: [(180 days - 30-day waiting period) × $150 × 80% = $18,000]. Damiano will pay the remaining $9,000.

The $18,000 is not included in Damiano's income because it is excludable under his contract as amounts received for personal injury and sickness, pursuant to LTC reimbursements, [§104(a)(3) and §7702B(a)(2)]. Furthermore, Damiano can deduct the $9,000 he paid as a medical expense on Form 1040, Schedule A, Itemized Deductions, Medical and Dental Expenses (subject to the 7.5% AGI limit) [§213(d)(1)(C)].

If the taxpayer receives LTC insurance reimbursements, they are excluded from income under §7702B(d)(1) to the extent that they do not exceed the annual per diem limit. Note that the related expenses are also not deductible as Schedule A medical expenses to avoid a double benefit.