Some of my clients incur sizeable medical expenses for themselves and family members. I tell them not to expect much help from the IRS when it comes to deducting such expenses.
The agency requires them to pass several tests. To begin with, they have to forego the standard deduction and itemize on Schedule A of Form 1040 in order to deduct their expenditures. Another stipulation is that their expenses have to be for bills that aren’t covered by insurance, reimbursed by employers or otherwise satisfied.
The big hurdle: The expenses have to be sizable. Expenses are allowable only to the extent that their total in any one year exceeds a specified percentage of adjusted gross income. To complicate matters further, Congress keeps changing the percentage.
I remind clients that they did get some help from the Tax Cuts and Jobs Act (TCJA). True, the legislation abolishes or curtails many long-cherished write-offs—for example, exemptions for dependents and write-offs for state and local income and property taxes.
But lawmakers included a provision that slightly liberalizes how much can be claimed for medical expenses. They replaced a threshold of 10 percent, except for persons older than 65, with a threshold of 7.5 percent for 2018 and 2019. The threshold reverts to 10 percent for the years 2019 through 2025 unless Congress, in the meantime, goes back to the drawing board.
More important, amid all the nitpicky 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 houses.
That doesn’t mean, however, that they’re entitled to deduct all of their payments for equipment or improvements. Those kinds are allowable only to the extent that they exceed increases in the value of their homes.
An example: A client I’ll call Ida has a daughter who is asthmatic. An allergist advises Ida to install an air cleaning system and other kinds of equipment that wind up costing $20,000. The improvements result in an increase of $15,000 in home value. With those numbers, Ida’s 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.
I remind Ida that the IRS is willing to cut her some slack if she is unable to deduct outlays for improvements because they don’t exceed the increase in the value of her home. She still can deduct payments for operating and maintaining equipment. Such expenses might include electricity, repairs and service contracts, as long as the equipment remains medically necessary.
I thought to mention how other law changes affect Ida. But I notice that her eyes are glazing over. So I conclude without mentioning that buried in the TCJA is a provision that deep-sixes miscellaneous itemized deductions on Schedule A, including payments for advice on tax planning.
This prohibition applies to the check that Ida is about to hand me. Time enough to mention that after her check clears my account.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.