• We're in the midst of tax return season -- the state and federal filing deadline for filing your 2022 return is April 18 this year. But, it's not too early to begin keeping track of what you may be able to deduct on this year's returns when you file them next year. Peg Savchik shares with her Terrace neighbors the following Wall Street Journal story about medical deduction possibilities, some of them rather unusual.
By Laura Saunders
The Wall Street JournalA home elevator. Tuition for a special-needs school. Fees for assisted living. Even a swimming pool.
When these and other items qualify as medical expenses under the tax code, the costs can be deductible—but many Americans don’t know that.
Melanie Lauridsen, a senior staffer at the American Institute of CPAs, recently surprised a friend who is installing a home elevator for a disabled spouse by pointing out it could qualify for a medical-expense deduction.
“She said, ‘I had no idea,’ and was relieved to hear it,” says Lauridsen.
The swimming pool deduction surprised a client of Jeffrey Porter, a CPA in Huntington, WV. When the client mentioned some years ago that he was putting in an enclosed pool recommended by a doctor for a family member with a chronic disease, Porter told him it could be deductible if he had the right paperwork.
The net deduction came to more than $100,000, says Porter, and it held up on audit by the Internal Revenue Service. “It was the fastest audit letter I ever got. But I went into the IRS office with the documents and was out in about an hour, with no change,” he adds.
In 2020, about 4 million filers deducted medical expenses on Schedule A, compared with about 12 million for mortgage interest and about 13 million for charitable donations, according to the latest IRS data. Still, the average medical expense deduction was about $20,000, and it likely came at a time when a tax break was especially welcome.
Many filers are shut out of this tax break by two limits. One is the need to itemize deductions on Schedule A rather than take the standard deduction. The other is that expenses must be above 7.5% of adjusted gross income (AGI) to qualify for a deduction.
So, if a couple has an AGI of $200,000, they can only deduct eligible medical expenses above $15,000. (AGI is on Line 11 of the 2022 1040 form, and it includes wages, self-employment and investment income, but not the standard or itemized deductions.)
Because the medical expense deduction isn’t common, some taxpayers who qualify may not be aware of it, or of the wide array of expenses it applies to. What’s allowed is far beyond what insurance covers and can further boost the deduction.
A good example: fees at special-ed schools.
At The Siena School, which has campuses in Maryland and Northern Virginia for 200 students with such learning differences as dyslexia, the entire $48,000 tuition qualifies as a medical expense. But Siena School parents can deduct more than just tuition. Medical expenses also include fees for professional testing plus the cost of transporting a student to and from school.
Bekah Atkinson, Siena’s admissions director, provides this information from a CPA to parents: “We reassure the nervous ones that this is legal. Just keep good records,” she says.
For taxpayers whose medical expenses aren’t high enough to qualify, knowing what’s eligible still is a good idea. That’s because the expenses allowed for the deduction are also allowed for Flexible Spending Account and Health Savings Account reimbursements, but without the 7.5% AGI threshold.
A 10-page list of eligible medical and dental expenses is included in IRS Publication 502.
Here’s more to know:
• What you can deduct -- Eligible expenses are for costs of “diagnosis, cure, mitigation, treatment, or prevention of disease,” according to the IRS. They must be “primarily to alleviate or prevent a physical or mental disability or illness.” They also must be unreimbursed, so no double dipping is allowed. Qualified costs include bandages, breast pumps, guide dogs, medical conferences, contact lenses and solution, drug-addiction treatment, obesity treatment, wigs after chemotherapy, psychotherapy, dentures, stop-smoking programs, nursing-home and assisted-living care, special-education tuition, and many more.
• What you can’t deduct -- Among other things, cosmetic surgery to improve appearance, including hair transplants; health club dues or weight-loss programs to improve general health; and, funeral expenses.
Non-prescription medicines other than insulin are not eligible for this deduction.
• Capital expenses -- The IRS provides a long list of home-modification expenses that qualify for a medical deduction without an appraisal, such as entrance ramps, handrails, and enlarged doorways.
For expenses that add permanent value to a home, such as an elevator or swimming pool, the taxpayer must get an appraisal of the increase in value and reduce the deduction by that amount.
• Insurance premiums -- In general, unreimbursed health insurance costs can be deducted, including Medicare Parts B and D premiums. But taxpayers can’t deduct premiums for which they or their employer received a credit or a deduction. Deductions for long-term care insurance premiums are limited by age. The largest allowable expense for 2023 is $5,960 for each individual age 71 and older.
• Alternative medicine treatments -- Many have been allowed, including acupuncture and Navajo healing ceremonies, says tax analyst Mark Luscombe of the publishing company Wolters Kluwe.
In 2017, a Tax Court judge allowed a person with severe spinal conditions who had been told that surgery would be risky to deduct about $30,000 spent for “energy healing,” a form of alternative medicine. The taxpayer assured the court the treatments had helped a great deal and provided evidence.
• Costs for 'medical dependents" -- A little-known rule can provide a benefit to taxpayers who support and pay medical costs for others such as elderly relatives. Even if the supported person has more than a few thousand dollars of annual income -- making him or her ineligible to be a dependent for taxes -- the tax filer who pays the medical expenses can deduct the costs on his or her own return. A helpful twist here is that the person paying the expenses can often deduct them in the year they’re paid, even if that’s years after the expenses were incurred, according to an IRS spokesman.
• Transportation and lodging -- The cost of travel by plane, bus, taxi, train, or car to receive medical care can be a deductible expense. Those going by car can deduct either certain actual expenses or one overall expense per mile. For 2023, this is 22 cents per mile, far less than the 65.5 cents per mile allowed for business use of a car.
The cost of lodging can also be deductible. The longstanding limit is $50 for the patient plus $50 for one other person, per night.
As always with taxes, keep good records for all these expenses.
