In the past, it was difficult to qualify for medical expense deductions. Now, some pundits would say that it is “nearly impossible.” Based on tax law changes that took effect in 2013, most taxpayers can deduct only unreimbursed expenses in excess of 10% of their adjusted gross income (AGI), up from 7.5% of AGI under prior law. For taxpayers who are aged 65 or older, the threshold remains at 7.5% of AGI, but only through 2016.
Nevertheless, you should not completely give up hope. Medical and dental expenses for the family can add up to a surprising amount over the course of the year. And you may be entitled to claim some expenses you had not counted on. Here are several possibilities you could easily overlook.
Prescription drugs: Amounts paid for prescription drugs and insulin are considered to be deductible medical expenses. But over-the-counter medications are generally not deductible.
Transportation costs: The deductible amount is not limited to the actual cost of the physician’s or hospital’s services. You may also deduct the cost of traveling to and from the treatment (even if similar treatment is available nearby). If you travel by car, you can either deduct your actual automobile expenses or a flat rate established annually by the IRS (23 cents per mile in 2015). Although the flat rate method is more convenient, you may come out ahead by keeping track of your actual expenses.
Lodging costs: You can also deduct the cost of staying in a hotel or motel while you receive medical care away from home. However, the accommodations cannot be “lavish or extravagant.” The deductible amount for lodging is limited to $50 per day. If a companion’s presence on the trip is required, the cost of the companion’s lodging is also deductible (subject to the $50 per day limit).
Nursing care: If you or a family member needs nursing services in the home, the cost of such services is a deductible medical expense. The medical care does not have to be provided by a registered or trained nurse. In other words, you can pay someone else (e.g., another family member) to provide the care and deduct the expense.
Insurance: Medical insurance premiums paid with after-tax income count toward the deduction. This includes the cost of long-term care insurance up to certain limits based on your age.
Capital improvements: You can deduct the cost of a home improvement if the improvement is made for a medical reason. For instance, the cost of installing central air conditioning to alleviate a child’s asthma is deductible. The amount eligible for the deduction equals the cost above the increase in value of your home. Side benefit: The cost of maintaining and operating the improvement also qualifies for the deduction.
This is just an overview of several common expenses that may qualify for the medical deduction. There is a long list of more unusual expenses that have been approved by the IRS or the courts. These costs may push you over the threshold for deducting medical expenses in 2015.
Looking for more healthcare accounting expertise? Contact Lesley L. Price, CPA by calling (334) 887-7022 or by leaving us a message below.