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Medical Deductions for People with Disabilities

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People with disabilities make up almost 20 percent of the U.S. population. In honor of National Disability Employment Awareness Month, tax guru Julian Block provides an overview of medical deductions and what the IRS considers to be "qualifying expenses" when it comes to home improvements for accessibility, schooling children who have disabilities and more.

Oct 29th 2021
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Accounting WEB wants to remind the accounting community that October was National Disability Employment Awareness Month. 

CPAs and other accounting professionals with clients who have disabilities can help them trim their taxes by helping them take advantage of tax breaks provided specifically to people with disabilities. 

The next four columns will be devoted to highlighting some often-overlooked tax breaks, beginning with qualified medical expenses.

Medical-expense deductions for people with disabilities. Let's say your client incurs sizable expenses for medical care of a family member with a disability. The tax code imposes a series of restrictions on deductions for her expenditures. 

First, your client must forgo the standard deduction amounts available for nonitemizers and itemize on the 1040 form’s Schedule A. Second, those payments can only be for bills that aren’t covered by insurance, reimbursed by her employer or otherwise satisfied. Third, they’re deductible only to the extent that their total in any one year exceeds 7.5 percent of her adjusted gross income. 

Assuming your client satisfies these three requirements, her deductible expenditures encompass much more than the obvious, like payments to doctors and hospitals. They also include outlays that are frequently omitted, such as those for medically mandated home improvements or the installation of accessible equipment or facilities within her home. However, the IRS won't allow her to claim the entire cost of the equipment or improvements that increase her dwelling’s value. 

Typically, the IRS will allow her to claim only the amount by which the cost of the equipment exceeds the increase in her home’s value. For example, if an allergist recommends that your client install an air-cleaning system for a family member with asthma that costs a total of $20,000, but her home value increases by only $15,000, her allowable deduction will be $5,000. 

Other examples of improvements or equipment that pass muster include accessible elevators or bathrooms. Keep in mind that the IRS is more accommodating when rental properties make doctor-recommended improvements, such as wheelchair ramps, for tenants.

Renters get to claim the entire cost because the improvement adds nothing to the value of their property. Whether your client owns or rents, her deductibles include the entire cost of detachable equipment––for instance, window air-conditioning units that relieve medical problems. 

What happens when your client can’t deduct the cost of accessible equipment because it is less than the home’s increase in value? The IRS will allow her to deduct operating and maintenance expenses. These might include electricity, repairs or service contracts, as long as the medical reason for the equipment continues.

Making homes accessible for people with disabilities. The IRS concedes that some improvements generally don’t increase the value of a personal residence. The agency takes them into account, subject to the nondeductible 7.5-percent floor for medical expenses, provided the primary reason for the improvements is to make the dwelling accessible for residents who have disabilities, including your client, her spouse and any dependents who live with her. Qualifying expenses include:

  • Constructing entrance or exit ramps for people who use wheelchairs
  • Widening doorways at exits or entrances to accommodate wheelchairs
  • Widening or otherwise modifying hallways or interior doorways to accommodate wheelchairs
  • Installing railings, support bars or other modifications to bathrooms
  • Lowering or modifying kitchen cabinets and equipment to accommodate people who use wheelchairs
  • Moving or modifying electrical outlets
  • Installing porch lifts and other lifts (except for elevators, as discussed above, because they may add to a residence’s fair market value, and any deductions would have to be decreased to that extent)
  • Modifying fire alarms, smoke detectors or other warming systems
  • Modifying stairs
  • Installing handrails and grab bars, whether or not in bathrooms
  • Modifying door hardware
  • Modifying areas in front of entrance and exit doorways
  • Grading of ground for better access to a residence

What’s next? Column two will discuss tax breaks for home sellers who have disabilities. 

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