How high can you jump? To claim a deduction for medical expenses on your personal tax return, you have to clear an annual hurdle imposed by the IRS. Although the bar was lowered a couple years ago, it still takes a significant leap to clear this threshold. Fortunately, you may be able to count on more deductible expenses than you initially thought.
For decades, the tax law imposed a medical deduction threshold of 7.5% of adjusted gross income (AGI). In other words, your deduction was limited to the excess after subtracting the threshold amount. The threshold was briefly raised to 10% of AGI; however, Congress reinstated the 7.5%-of-AGI mark.
Subsequent legislation made the lower threshold permanent, beginning in 2021. Nevertheless, it's usually difficult for taxpayers to qualify for a deduction.
Following are seven types of qualified expenses that are often overlooked.
1. Transportation. The deductible amount for an expense isn't limited to the actual cost of the services provided by the physician, dentist or hospital. You may also deduct the cost of getting back and forth from the treatment even if similar treatment is available nearby. If you travel by car, you can either deduct actual vehicle expenses or use a simplified standard mileage rate (plus related tolls and parking fees). Although the standard mileage method is more convenient, you may come out ahead by keeping track of your actual expenses.
Important: Due to fast-rising inflation, the IRS just increased the rate from 18 cents per mile for the first six months of 2022 to 22 cents per mile for the rest of the year.
2. Lodging. Similarly, you can deduct the cost of staying at a hotel while you're receiving medical care away from home. However, accommodations can't be "lavish or extravagant." (The deductible amount for lodging is limited to $50 per day.) So, if you stay for a week, you can deduct up to $350.
If you must travel with a companion (such as your spouse), the cost of their lodging is also deductible up to $50 per day. Thus, if a couple stays near the Mayo Clinic for a week while one spouse receives treatment, they're entitled to deduct a total of $700.
3. Medical dependents. You can deduct expenses incurred by your spouse and children. But you can also write off costs attributable to the care or treatment of another family member if the relative qualifies as your dependent. For someone to qualify as your dependent, you must provide more than half of their support and they can't have more than the personal exemption amount in gross income.
Tax break: You don't have to meet the "gross income" part of the test to count a relative's medical expenses you pay as your own.
4. Nursing care. If a family member needs home nursing services, the cost is deductible as a medical expense. For instance, if you hire an aide so you can work while your spouse recuperates from a back injury, you can deduct the cost. However, you can only deduct the amount of cost attributable to the care if the aide provides other household services such as cooking and cleaning.
Care doesn't have to be provided by a registered nurse or other healthcare professional. You can pay someone else — even another family member or friend — to provide care and still deduct the cost.
5. Long-term care insurance (LTCI). Of course, you can deduct out-of-pocket health insurance premiums, but what about amounts spent on LTCI? The answer isn't as simple. You're allowed to deduct these premiums based on the age of the insured person, adjusting for inflation. For example, if you're 51 to 60 years old, you can deduct up to $1,690 on your 2022 return. If you're over 70, the maximum is $5,640. Also, your qualified medical expenses may include the cost of LTCI coverage paid for relatives, such as elderly parents or in-laws.
6. Home improvements. Normally, home improvements are considered nondeductible personal expenses, but you can deduct the cost if an improvement is made for a medical reason. For instance, the cost of installing central air conditioning to alleviate a child's asthma generally is deductible.
You're allowed to deduct the cost above the increase in value of your home. Say you install an in-ground pool to accommodate your spouse's heart condition. If the pool and related expenses (such as fencing and landscaping) cost $50,000 and increase your home's value by $40,000, you can deduct $10,000. This may require an official appraisal. Extra benefit: The annual cost of maintaining and operating the improvement is also deductible.
7. Healthcare-related Tuition Costs. If you have children in college, you may be able to deduct the portion of tuition you pay related to health care. Health care charges must be specifically stated in the tuition bill or be easily obtained from the school. This tax break is phased out for upper-income taxpayers, but the portion of tuition that can be attributed to health insurance coverage is deductible as a medical expense. Practical idea: Request a breakdown of expenses, in writing, from the college your child attends so you'll have it at tax time.
These are just seven possibilities. You may qualify for other deductions. Contact your professional tax advisor for guidance.
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