February 10, 2017
Home Improvements as Medical Expenses
Not long ago we referred to the fact that an increasing number of aged individuals with a variety of infirmities wish to continue to reside in their homes and need significant levels of care, and that the cost of this care was posing many tax questions for those responsible. This is particularly critical with regards to the payment for in-home health care. The article suggested there are many risks to paying for these costs.
On a more positive note is the fact that there are also some tax benefits in ensuring that the residence is safe for the elderly who live there.
According to the U.S. Department of Health and Human Services, the number of moderately or severely disabled elderly persons will grow to 22.6 million by 2040. Considering that approximately 79% of people requiring long-term care live in their homes, it is likely that substantial repairs or improvements will be required to the residences to accommodate the specific health needs.
The costs associated with these repairs for modifications of the house are considered under the general category of the medical expense deduction. This is an itemized deduction and therefore not as widely used as others because many taxpayers elect not to itemize but simply use the standard deduction. Additionally, its use is limited by the fact that only those medical expenditures exceeding 10% of adjusted gross income are deductible.
However, even with those restrictions and limitations, remember what we are talking about: repairs and modifications to houses. Construction costs generally are not insignificant, so the 10% limitation might easily be overcome. The costs of home improvements and special equipment may qualify for a medical expense deduction. Qualifying expenses include obvious items such as constructing an accessible entrance ramp, installing a lift, widening doorways to accommodate a wheelchair, and attaching grab bars and handrails.
The potential deduction for the expenditure must be reduced by the amount the improvement increases the value of the property. This requires the taxpayer to obtain appraisals of the property before and after the expenditure, although many of the more common expenditures can avoid this requirement.
Do you need a prescription or doctor’s orders? While it is recommended, particularly for the more significant or unusual modifications, it is not necessary. In fact, many websites provide information for those facing particular health challenges as to which modifications will improve the quality of living for a person facing that disability.
Many expenses may potentially qualify as deductible expenses when modifications are made to a taxpayer’s home for medical reasons. But it is important that the taxpayer be able to demonstrate how the expenditure relates to his or her medical care and that the deduction be limited to expenses that do not increase the value of the residence. Because of the aging population growth, it is critical that if you plan to spend money to modify the home to accommodate some disability, you consult with your tax advisor.
The combination of running a business and your life and preparing for tax time can drive some people into a slight panic. But no need to get stressed if you are prepared. Now is the time to start organizing all documents required to file your tax return.
Like the old paraphrased saying goes: In this world, two things are certain—death and taxes. The recent federal tax overhaul changed a lot of rules, so it’s as important as ever to understand your tax obligations, including those on Social Security benefits.
Unfortunately, cyber scammers never take a vacation. In fact, the IRS has issued a warning of a surge in fraudulent emails that bait potential phishing victims with fake tax transcripts. Links within these emails lead recipients to documents containing the well-known malware, Emotet.