Breaking the Code: Medical Expense Deduction
By: Rachel Speigle Dunnigan, CPA, MSA
We receive a lot of inquiries about itemized deductions, but many questions surround the topic of medical expenses.
The medical expense deduction remained in place post-TCJA (Tax Cuts and Jobs Act) with a few updates. For tax year 2019, individuals can deduct medical expenses that exceed 10% of their adjusted gross income (AGI).
Who is eligible for this deduction?
Since this deduction is only available for individuals who are itemizing their deductions, it is now even more difficult to utilize because of the increased standard deduction. Another important item to note is that the deduction is only available for expenses actually paid in a tax year. That means that if you had surgery in December 2018 and paid for the surgery in January 2019, those surgical expenses are only eligible for your 2019 tax return.
Which medical expenses are deductible?
The IRS allows taxpayers to deduct the following as qualifying medical expenses: preventative care, dental and vision care costs, treatment, surgeries, psychologist and psychiatric visits, prescription medications, medical appliances like hearing aids, glasses and contact lenses, false teeth, and hearing aids, and even guide dogs! And don’t forget about your commute – bus fare, parking, and mileage on your car is an allowed deduction as well. For 2019, the mileage deduction is 20 cents per mile.
Additional deductions include medically required home renovations. For example, installing a ramp, modifying stairways, or lowering cabinets may be deductible only if the revamps do not increase the value of the home. If an improvement does increase the value of the home, the deduction is limited to the difference between the medical expense and the increase in home value.
Ineligible medical expenses include general overall health purchases, cosmetic surgery, insurance premiums from some employer-sponsored health insurance plans, non-prescription drugs and medicine, or any expenses that received prior reimbursement.
What are some alternative solutions if I am under the 7.5% floor or am not itemizing my deductions?
Many individuals are not able to take medical expense deductions unless there is a major medical occurrence in a particular tax year. If you are aware that you may have large medical expenses in the future, it may be beneficial to “bundle” your expenses so that they all occur in the same year.
There are also other tax-beneficial planning options that can be utilized regarding health care costs. If an individual is on a high-deductible health plan, investing in a health savings account (HSA) may be a good solution. The contributions are tax-deductible an withdrawals are tax-free as long as they are used for qualified medical expenses. These contributions are maxed out at $3,500 for individuals ($7,000 for families) in 2019.
While we hope no one needs to leverage these medical deductions, please reach out if you have any further questions regarding your individual tax situation.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.