John Bullis: Medical deduction for home improvements
September 4, 2012
The itemized deductions on Schedule A of Form 1040 include medical expenses that are greater than the adjusted gross income threshold.
Most folks who claim itemized deductions have seen the threshold (amount that is not deductible) is 7.5 percent of adjusted gross income (first page of form 1040, bottom line).
The questions usually are just what is defined to be “medical expenses”?
If you do doctor-prescribed home improvements, such as an elevator and other modifications to allow wheelchair access, part of the cost probably qualifies as a medical expense.
For example, if the improvements cost $20,000 and a qualified real estate appraiser estimates (in writing) that the value of the home only increased $7,000, then the remaining cost of $13,000 is a medical expense. That would add to your other medical expenses (insurance premiums, prescriptions, doctor, hospital, lab fees, hearing aid, eyeglasses, travel to and from medical appointments, etc.).
Then the total medical expenses are reduced by 7.5 percent of adjusted gross income to get the deductible amount that adds with your other itemized deductions.
In the above example, if the $13,000 is additional medical expenses (assuming the 7.5 percent reduction is covered by your other medical expenses) and the last bit of taxable income is being taxed at 25 percent, about $ 3,250 is saved as reduced income taxes.
By the way, the costs to operate and maintain that medical improvement to your home also is a medical expense.
It’s a good idea to take pictures of the home before and after the medical improvement, just in case IRS were to ask for some explanations or documentation.
There have been several court cases on this issue. Good documentation is important to get the income tax savings you are entitled to have.
If you are not the owner, but are renting the home, the entire cost of the improvements is most likely eligible for the medical expense deduction. However, most folks who benefit from itemized deductions have interest expense on their home mortgage. A renter may not have enough other itemized deductions that are greater than the standard deduction.
If you need to modify your home to handle a family member’s medical condition, be sure to claim all you are entitled to claim.
Did you hear? “Things may come to those who wait. But only the things that are left by those who hustle,” said Abraham Lincoln.
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.