If you’re a self-employed real estate professional who is over 65 and receives Medicare, you may be able to deduct all your Medicare insurance premiums.
The IRS recently ruled that Medicare recipients who have self-employment income may deduct the premiums they pay for Medicare coverage — the same as premiums for any other type of health insurance by the self-employed.
Medicare Part A coverage, which covers hospital costs, can exceed $5,400, while Part B premiums for supplemental medical insurance are about $100 per month. So this deduction can really add up.
This comes as unexpected good news because, before 2010, the IRS said that Medicare premiums were not deductible under the self-employed health insurance deduction. Then, in 2010, the IRS said that only premiums for Medicare Part B were deductible.
But now it says that premiums for all forms of Medicare are deductible (Parts A, B, C, and D). (IRS Office of Chief Counsel Memorandum 201228037.) This rule also extends to Medicare premiums for coverage of a self-employed person’s spouse, dependent, or child under age 27.
You can use this deduction only you’re a sole proprietor, partner in a partnership, limited liability company member, or S corporation shareholder who owns more than 2 percent of the company stock.
This is a special personal deduction that applies only to your federal, state, and local income taxes — not to your self-employment taxes.
Moreover, you may deduct only as much as you earn from your business. If your business earns no money or incurs a loss, you get no deduction. If your business is organized as an S corporation, your deduction is limited to the amount of wages you are paid by your corporation.
If you have more than one business, you cannot combine the income from all your businesses for purposes of the income limit. You may only use the income from a single business you designate to be the health insurance plan sponsor.
Because the self-employed health insurance deduction is a personal deduction, you take this deduction directly on your Form 1040 (it does not go on your Schedule C if you’re a sole proprietor).
If you itemize your deductions and do not claim 100 percent of your self-employed health insurance costs on your Form 1040, you may include the rest with all other medical expenses on Schedule A, subject to the 7.5 percent of adjusted gross income limit on deducting such expenses. You would have to do this, for example, if your health insurance premiums exceed your business income.
If you’ve been paying Medicare insurance premiums for the past several years, you should amend your past returns to claim this deduction. You can file an amended return up to three years after the date you filed your original return for the year (April 15 or October 15 if you obtained an extension to file). Thus, your returns for 2009-2011 may be amended.
If, like most real estate pros, you are a sole proprietor, you may amend your income tax return by filing IRS form 1040X, Amended U.S. Individual Income Tax Return. When you file Form 1040X to obtain a refund of taxes you’ve already paid, it is called a "claim for refund."
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.
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