Ranging from Home Renovations to Clarinet Lessons
Family medical costs continue to rise, with more than half the respondents in a recent national survey reporting that medical costs “seriously” or “very much” impact their household budgets—and two-thirds saying they had been surprised by medical bills in the past 12 months.
But surprising tax deductions for medical expenses exist, too—ranging from big-dollar home improvements that help people deal with medical conditions to many small items that you might not expect to be deductible, such as clarinet lessons to help remedy a child’s overbite. (For the essential rules on medical deductions and strategies to use them, see below.)
Here’s a guide to dozens of possible medical deductions—many of them surprising…
Home improvements and modifications. A client of mine was able to deduct the cost of an elevator that he installed in his multistory house for $17,000 to help him go from floor to floor after a leg injury.
Deductions also have been allowed for…
• Swimming pools, when swimming is prescribed as medical treatment and no suitable public facility is available.
• New siding on a home when old siding had become infested with mold, contributing to a medical problem.
• Central air-conditioning to alleviate a respiratory condition.
Operating and maintenance costs for such improvements are deductible, too, such as the service cost for maintaining a pool or elevator.
When an improvement increases the value of your home, the deductible amount is the improvement’s cost minus the increase in value. So if a $20,000 expense increases your home’s value by $5,000, the deductible amount is $15,000. Document any increase in value by obtaining an appraisal. The cost of the appraisal is deductible, too, not as a medical expense but among your miscellaneous itemized deductions.
Many home modifications are assumed by the IRS not to increase the value of a home and so are fully deductible when made to meet the needs of a family member with a limiting physical condition. These may include…
• Relocating or modifying kitchen cabinets.
• Grading the ground around a house to provide easier access.
• Widening doorways and hallways.
• Installing railings and support bars anywhere in the house.
• Shifting the location of or otherwise altering electrical outlets and fixtures.
Vehicle modifications. Another client of mine was able to deduct $20,000 of changes made to a minivan to meet the needs of a family member with disabilities. Smaller modifications such as special hand controls or pedals to help deal with a physical disability also are deductible. If you buy a new vehicle customized to meet the physical needs of a family member, the extra cost over a standard model is deductible.
Travel and transportation. Local transportation to medical appointments and treatments is deductible, including the cost of transport by taxi, bus, train and car. And despite general IRS limits on long-distance travel deductions, you can deduct the cost of long-distance travel undertaken for medical reasons, such as travel to…
• A doctor in a distant city who has special knowledge of your medical condition or your medical history (such as your former doctor in a location from which you’ve moved).
• A conference where you can learn about a condition that afflicts you or a family member.
Ask for and keep receipts. If you drive your own car, you can deduct either your expenses for gas, oil changes and the like or, to keep things simple, 23 cents per mile (for 2015), plus parking and tolls. Lodging and meals generally are not deductible on such trips.
Costs paid for nondependents. You can, of course, deduct medical expenses for your dependents—and sometimes you can deduct costs paid for nondependents, too. These include…
• People who do not qualify as your dependents only because their income is too high (more than $4,000 in 2015). Example: A retired parent who doesn’t live with you but gets more than half of his/her support from you—such as when the parent is in a nursing home. Medical costs may be very high in such cases.
• A child who is claimed as a dependent by your ex-spouse. Rule: When either divorced spouse claims a dependency exemption for a child, each spouse can deduct medical expenses that the spouse actually pays for the child.
Insurance. As health insurance costs continue to rise, make the most of deducting premiums. Examples…
• Health insurance premiums for self-employed people are deductible to the extent that you have earned income.
• Long-term-care insurance is a defense against the risk of potentially huge costs for nursing home care. Premiums are deductible in an amount that rises with age—ranging in 2015 from $380 annually for people age 40 or younger to $4,750 for people over 70.
• Medicare Part B and Part D premiums are deductible, as are Medigap policy premiums.
Your share of premiums for an employer’s group plan generally is not deductible because premiums usually are deducted from wages before taxes.
Various additional surprising deductions include…
• Medical services that are included in a tuition bill—you may have to ask the school to itemize the bill.
• Legal expenses necessary to obtain authorization for medical treatment.
• Equipment used to alleviate a medical condition, such as portable air conditioners, humidifiers and dehumidifiers—and their operating cost. (It helps if the doctor is specific about brands and specifications.)
• Service animals with special training used to alleviate disabilities. Examples: Cats trained to react to sound for the deaf…Seeing Eye dogs for the blind.
• Weight-loss programs to remedy a specific medically diagnosed condition, such as hypertension or diabetes (but not for simply being overweight).
• A diet prescribed by a doctor to the extent that its cost exceeds that of standard meals.
• Fees paid to a note taker for a deaf person.
• The cost of a wig prescribed for mental health reasons following hair loss due to disease.
• A musical-instrument remedy, such as clarinet lessons prescribed to help treat a child’s dental bite problem.
• Pregnancy test kits.
• Batteries for hearing aids.
You may discover new surprising deductions of your own for many activities incurred primarily for the “diagnosis, cure, mitigation, treatment or prevention” of disease or a medical or physical condition.
However, having a prescription or a doctor recommendation is not necessarily going to make any expense a medical expense. Vacations and pianos, for instance, sound dubious even if prescribed. The IRS may hire medical experts to review diagnoses and treatments. Don’t get carried away or too creative.
How to Maximize Medical Deductions
Medical expenses are deductible on an itemized federal tax return to the extent that the total of these expenses exceeds 10% of adjusted gross income (AGI), or 7.5% of AGI for taxpayers age 65 or older and joint returns where the older spouse is 65 or older. So if a return reports $50,000 of AGI, expenses exceeding $5,000, or $3,750 for a taxpayer age 65 or older, are deductible.
By claiming all the deductions that you are entitled to—and timing them wisely—you can minimize your medical costs in after-tax dollars. Time a deduction by choosing to pay an expense before or after year-end.
• If you expect your medical expenses to be over the 10% (or 7.5%) of AGI limit for the current year or next year but not both, you will want to take as many deductions as you can in that one year.
• If you will be over the limit in consecutive years, take as many deductions as you can in the year in which you expect to be in the highest tax bracket if that will vary between the two years.
Now is an excellent time to figure out timing strategies, because enough of the year has passed to judge your tax position while enough remains to plan year-end medical appointments and expenditures.