You may think that there’s little or no chance you can deduct medical expenses. After all, only unreimbursed outlays are deductible, and only to the extent that they exceed 7.5% of your adjusted gross income (AGI). Even worse, if you are subject to the alternative minimum tax (AMT), only those medical costs over 10% of your AGI are deductible.
Harsh reality: As medical costs keep rising, many taxpayers’ shares of medical bills will start to creep over the threshold. That may already be true for you if you’re paying higher health insurance premiums with after-tax dollars and have high deductibles, copays, and coinsurance (in which you pay a specific percentage of the bill).
Silver lining: Some little-known Tax Code wrinkles may help you add to your list of deductible medical expenses.
In some cases, capital improvements to your home will qualify as deductible medical expenses.
Required: The capital improvement must be incurred primarily to alleviate a specific health condition.
Examples: A doctor tells you to install central air-conditioning to help you cope with asthma, allergies, or other respiratory problems. Alternatively, a daily swim is prescribed for your arthritis, so you install a pool. In yet another scenario, an elevator is said to be necessary because someone in your house has a heart condition.
What to do: Get before-and-after appraisals of your home. The amount you spend, minus the increase in your home’s value, will be a medical deduction.
Example: You spend $25,000 installing central air-conditioning. A local real estate agent provides a written appraisal saying that your house, which was worth $300,000 previously, is now worth $315,000 as a result of the improvement.
Result: You spent $25,000 and your house appreciated by $15,000. The difference ($25,000 – $15,000 = $10,000) can be used as an itemized medical deduction.
Moreover, ongoing operation and maintenance costs of the air-conditioning (or the pool or the elevator) may qualify as medical expenses. To calculate your deduction for air-conditioning, for example, you might figure the difference between your electricity costs before central air-conditioning and your electricity costs after central air-conditioning, and include other costs, such as service contract, repairs, filters, etc.
Strategy: Before starting on the home improvement, get a written recommendation from the doctor who treats the individual with the health condition. Ask him/her to spell out the reasons the home improvement is necessary to treat that condition.
That doctor’s note, along with your before-and-after real estate appraisals, can support your medical deduction.
Note: The full cost of installing ramps or other improvements to accommodate a disability is a deductible medical expense.
All in the Family
You probably know that money you spend on health care for yourself, your spouse, and dependent children can be included when you’re tallying medical bills.
Loophole: You also may be able to add money you spend for a parent’s medical expenses. In fact, health-care costs that you pay for other relatives, such as siblings, grandchildren, and in-laws, may be eligible for write-off, too.
Strategy: For these expenses to qualify, you must pay the provider of the health-care service or product directly. Don’t give money to someone else so that he can pay.
Required: The person whose bills you pay must be a US citizen or a resident of North America (US, Canada, Mexico). In addition, you must provide more than half of what it costs for that person to live — all costs, not just medical expenses — during the year.
Loophole: You don’t have to claim a relative as a dependent in order to take deductions for medical bills you pay for him. That relative needn’t live with you, either.
Nonrelatives: You also can take deductions for medical bills paid for someone who isn’t a relative, such as a domestic partner. That person must meet the qualifications mentioned above (US citizen or resident of the US, Canada, or Mexico, for whom you provide more than half of living costs).
However, the nonrelative must live in your principal place of residence for the entire year.
Even if you are not improving your home for health reasons or you are supporting a nondependent, you may be able to boost your medical deductions. Many taxpayers neglect to write off expenses for…
Travel for medical care. If you go by car, you can use the standard rate for medical travel. That’s 19 cents a mile in 2008 and 24 cents a mile in 2009. You can add money you spend for tolls and parking. If you don’t use a car, then train fares, taxi fares, etc., can be included.
Weight-loss programs. They’re deductible if the weight loss is a treatment for a specific disease (such as obesity, hypertension, or heart disease) diagnosed by a physician. You can write off fees you pay for membership in a weight reduction group and the cost of attending meetings.
Cosmetic surgery. Although surgery solely to improve your appearance isn’t deductible, cosmetic surgery can be written off if it promotes the proper function of the body (for example, reconstructive dental work after an auto accident) or prevents or treats illness or disease (such as removing a precancerous mole).
Also, cosmetic surgery may be deductible if it is done to ameliorate a deformity caused by injury, trauma, or disease. Repairing a nose smashed in an auto accident probably would qualify.
Dental treatment. The costs are generally deductible, except for purely cosmetic processes, such as teeth whitening. If there’s a question, get a statement from your dentist saying that the work was done for a specific health reason rather than for cosmetic purposes.
Vision care. The costs of prescription eyeglasses, contact lenses, and laser eye surgery may be included in deductible medical expenses.
Smoking-cessation programs. The costs of prescription drugs to help you deal with nicotine withdrawal are deductible, but not outlays for nonprescription nicotine gum and patches.
Long-term-care (LTC) insurance. The premiums you pay for yourself, your spouse, and someone else (dependents and non-dependents, as explained above) are deductible, subject to age-based limits.
In 2008, those age 40 or younger can deduct up to $310 paid for LTC insurance. That scales up as you grow older and peaks for those over 70, who can deduct as much as $3,850 in LTC premiums in 2008. To find LTC deductible amounts, see page 15 of IRS Revenue Procedure 2007-66 (http://www.irs.gov/pub/irs-drop/rp-07-66.pdf).
Other long-term-care services. If you are paying for the long-term care of someone who can’t care for himself, those costs — such as hiring a caregiver to assist a chronically ill individual with activities of daily living — may be deductible. The person you’re caring for must meet the eligibility tests for deducting medical expenses described above.