Schedule A for 2018 returns looks different than it has in past years. Under the Tax Cuts and Jobs Act (TCJA), certain itemized deductions have been modified or repealed. Plus, the law effectively doubles the standard deduction, so fewer taxpayers will be itemizing. The upshot: Now, more than ever, your clients will need your help in navigating the rules. Keeping that in mind, this series is designed to provide guidance for maximizing the Schedule A deductions still available to clients.
For many of your middle-to-high income clients, this may the last chance to claim a deduction for medical expenses for the foreseeable future. It all has to do with a “temporary” change included in the Tax Cuts and Jobs Act (TCJA) of 2017.
Prior to the TCJA, the threshold for deducting medical expenses was 10 percent of adjusted gross income (AGI). In other words, if unreimbursed expenses didn’t exceed 10 percent of the taxpayer’s AGI, he or she couldn’t claim any deduction.
Fortunately, the new law lowered the threshold to 7.5 percent of AGI, the floor that was in effect prior to the Affordable Care Act (ACA). This change was retroactive to 2017, but it only lasts through the 2018 tax year. The threshold reverts to 10 percent of AGI in 2019.
As a result, clients may qualify for a medical deduction on 2018 returns, based on the lower threshold. The deduction might not be available after this year, especially now that more taxpayers will be claiming the higher standard deduction under the TCJA. Thus, you should instruct your clients to comb their records to find any deductible items that might have slipped through the cracks.
What sort of “hidden” expenses are we talking about? Here are several examples:
Dependents: Although you can no longer claim dependency exemptions for elderly relatives, you can still deduct medical expenses paid on behalf of another person if you provide more than half of that individual’s annual support for the year. Including this extra amount may push you over the deduction threshold.
Transportation: A taxpayer may deduct the cost of traveling to receive medical care or treatment, including airfare, even if similar care or treatment is available nearby. If you go by car, you may deduct your actual expenses or a flat rate of 18 cents per mile (plus related tools and parking fee) on your 2018 return. (The flat rate increases to 20 cents per mile in 2019.)
Lodging: Similarly, a taxpayer may write off the cost of lodging at a hotel or motel while receiving medical care or treatment away from home, as long as the accommodations aren’t “lavish or extravagant.” The limit is up to $50 per day. If the presence of a spouse or other traveling companion is required, you can add this person’s cost of lodging to the deductible amount, subject to the $50‑per‑day limit.
Home healthcare: If a family member needs nursing services at home, the cost of the services is deductible. For instance, someone may require assistance if he or she is immobilized by a bad back or broken leg. The medical care doesn’t have to be provided by a registered nurse.
Home improvements: Normally, you can’t deduct the cost of home improvements, but you can derive tax benefits if the change is prescribed by a physician for medical reasons. For instance, if you install central air conditioning to alleviate a child’s asthma or build an in-ground swimming pool for a person with a heart condition, the cost above the increase in the home’s value is deductible. As a bonus, you can tack on the additional annual operating expenses.
If a client is below the 7.5 percent-of-AGI threshold mark for 2018, don’t simply give up. Have them review bank and credit card statements to see if some deductible medical expenses have been missed. This opportunity likely won’t come around again.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...