LTC premium refund

[Maribeth]

My client received a $35,000 refund on long term care insurance premiums. The policy was issued through Conseco Insurance. One of the terms was if the taxpayer kept the insurance in force for 10 years, then a refund of part of the premiums paid would be made by Conseco.

The taxpayer's 10 years were up in July 2007; they received the refund. The policy is still in force and the taxpayer continues to make monthly premium payments. The taxpayer did not have any long term care expenses, is not in a nursing or retirement home, and is not otherwise disabled or requiring assisted living help.

During some the of 10 years the taxpayer did have medical expenses over the 7.5% floor and part of those expenses were the long term care insurance premiums.

I am thinking that the tax benefit rule would apply here and that I have to determine how much of the refund is taxable. Does anyone have any experience with something like this or any opinions? Thanks for all your help.

Maribeth

[SCL]

LTC insurance contracts - fm 8853, pg 2, sec c & instructions is a place to start.

last year when i worked (stumbled) through a similar case but with less money, the atx program yielded no reported taxable income on an efile - what i was expecting. i'm waiting out an irs response

i'm not sure about prior year tax benefits (i had none). it's possible you may have some taxable income.