Medical-Expense Deductions for Disabled Persons

Accounting WEB wants to remind the accounting community that October was National Disabled Employees’ Month. Ditto for next October and succeeding ones. I want to help Accounting WEB emphasize that reminder.

Accounting firm’s client rosters typically include individuals with disabilities. Clients who are disabled or have family members with disabilities are aware that our lawmakers have crafted numerous tax breaks designed specifically to trim their taxes. Therefore, they expect their accountants to help them take maximum advantage of those breaks and to sidestep pitfalls. 

I’m going to devote several columns to the highlights of some often-overlooked opportunities. Let’s begin with low-hanging fruit: qualified medical expenses.

Medical expense-deductions for disabled persons. A client I’ll call Samantha incurs sizable expenses for medical care of disabled family members. The tax code imposes a series of restrictions on deductions for her expenditures. 

First, Samantha must forego 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 Samantha satisfies the trio of requirements, her deductible expenditures encompass lots more than just those obvious payments to doctors and hospitals. They also include frequently missed outlays for medically-mandated home improvements or the installation of special equipment or facilities within her home. 

What won’t the IRS allow her to claim? The entire cost of equipment or improvements that increase her dwelling’s value. 

What will it allow her to claim? Generally, it’s only the amount by which the cost of the equipment exceeds the increase in her home’s value.

An example: An allergist recommends that Samantha install an air cleaning system for a family member with asthma. With aggregate costs of $20,000 and an increase in value of $15,000, her allowable deduction clocks in at just $5,000. 

Other examples of improvements or equipment that readily pass IRS muster: elevators or bathrooms on lower floors that make things easier for persons with arthritis or heart conditions. Samantha knows that the agency is more accommodating when doctor-recommended improvements, such as wheelchair ramps, are made by tenants to rental properties. 

Renters get to claim the entire costs, because the improvements add nothing to the value of their properties. Whether Samantha owns or rents, her deductibles include the entire cost of detachable equipment––for instance, window air conditioners that relieve medical problems. 

How favorably does the IRS respond when Samantha can’t deduct equipment because its cost is less than her home’s increase in value? It allows her to deduct amounts spent for operating and maintenance expenses. These might include electricity, repairs, or service contracts, as long as the medical reason for the equipment continues.

Accommodating homes for handicapped persons. The IRS concedes that some kinds of improvements generally don’t increase the value of Samantha’s personal residence. 

It allows them to be fully taken into account, subject to the nondeductible 7.5 percent floor for medical expenses, provided the primary reason for the improvements is to accommodate the dwelling to the handicapped condition of Samantha, her spouse, or dependents who live with her. Qualifying expenses include:

• Constructing entrance or exit ramps to dwellings to help persons in wheelchairs
• Widening doorways at exits or entrances to dwellings 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 wheelchairs
• Moving or modifying electrical outlets
• Installing porch lifts and other lifts (but not 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 disabled home sellers.