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SOME OF MY CLIENTS incur hefty medical expenses for themselves and family members. I tell them not to expect too much help from the IRS when it comes to deducting such expenses—unless the costs are well into five figures.
To deduct medical costs, taxpayers have to forego the standard deduction and instead itemize on Schedule A of Form 1040. Their expenses also have to be for bills that aren’t covered by insurance or reimbursed by employers.
The big hurdle: The expenses have to be sizable. Not only do taxpayers’ total itemized deductions have to exceed 2018’s much higher standard deduction, but also medical expenses are deductible only to the extent that their total in any one year exceeds a specified percentage of adjusted gross income. Congress keeps changing the percentage.
I remind clients that they did get some help from the tax law passed by Congress in December 2017. True, the legislation abolishes or curtails many long-cherished write-offs—for example, exemptions for dependents, and write-offs for property taxes, and state and local income taxes.
But lawmakers included a provision that slightly liberalizes how much can be claimed for medical expenses. They replaced a threshold of 10% with a threshold of 7.5% for 2017 and 2018. The threshold reverts to 10% for the years 2019 through 2025.
More important, amid all the nitpicky tax rules, taxpayers often overlook a key notion: Deductible expenditures include more than just outlays for doctors, hospitals, eyeglasses, hearing aids, insurance premiums and the like. Taxpayers also are entitled to claim payments for medically-mandated home improvements, as well as the installation of special equipment or facilities in their homes.
That doesn’t mean, however, that they’re able to deduct all of their payments for equipment or improvements. Those kinds of payments are allowable only to the extent they exceed increases in the value of their homes.
An example: An allergist advises a child’s parents to install an air cleaning system and other kinds of equipment because the child is asthmatic. The aggregate cost is $20,000. The improvements result in an increase of $15,000 in home value. With those numbers, the parents’ allowable deduction is only $5,000.
Other examples of improvements or equipment that readily pass IRS muster are elevators or bathrooms on lower floors that makes things easier for persons who are arthritic or have heart conditions. More liberal rules apply when doctor-recommended improvements are made by tenants to rental properties—for instance, wheelchair ramps. Renters can claim all of their costs because the improvements don’t boost the value of a dwelling they own. Whether individuals are owners or renters, their deductibles include all of their payments for detachable equipment, such as window air conditioners that relieve medical problems.
The IRS cuts some slack for homeowners when they’re unable to deduct the cost of improvements, because those costs don’t exceed increases in the value of their homes. The agency says they still can deduct amounts spent operating and maintaining equipment. Such expenses might include electricity, repairs and service contracts, as long as the equipment remains medically necessary.
Julian Block wrote and practiced law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). He died in 2023. Check out the articles that Julian wrote for HumbleDollar.
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Good article. I would add that the improvements in your home that can’t be deducted as medical expenses can be added to your home’s basis as capital improvements. There is also usually quite a bit of leeway in estimating the amount that should be considered a capital improvement. In NY, the contractor doesn’t charge the home owner taxes for capital improvements, but is required to charge for work that doesn’t increase the value of the home.
Another deductible medical expense that you didn’t mention is available to those who own apartments in retirement facilities that provide health care. The facility’s health care expenses are allocated across residents each year regardless of whether they personally needed medical care.