Understanding the medical expense deduction for home improvements
According to the Family Caregiver Alliance, approximately 79% of people who require long-term care live in their homes. As such, modifications to make homes more accessible, safer, or capable of addressing specific health issues are necessary—and many individuals making these improvements may qualify for valuable home improvement medical expense deductions.
Under Sec. 213(a), the Home Improvement Medical Expense Deduction allows taxpayers to deduct expenses paid during the tax year for medical care of the taxpayer, the taxpayer’s spouse, or a dependent (as defined in Sec. 152), as long as the expenses are not compensated for by insurance or otherwise and to the extent that the expenses exceed 10% of the taxpayer’s adjusted gross income.
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.
A medical expense deduction for a home improvement is reduced to the extent the improvement increases the value of the related property. Therefore, an appraisal of the value of the home should be obtained before and after the improvements are completed. Some improvements may improve a home, while others might actually diminish value (e.g., a ramp at the front entrance).
In Rev. Rul. 87-106, the IRS ruled that the following expenditures “generally do not increase the fair market value (FMV) of a personal residence and thus generally are eligible in full for the medical expense deduction when made for the primary purpose of accommodating a personal residence to the handicapped condition of the taxpayer, the taxpayer’s spouse, or dependents who reside there”:
- Constructing entrance or exit ramps to the residence.
- Widening doorways at entrances or exits to the residence.
- Widening or otherwise modifying hallways and interior doorways.
- Installing railings, support bars, or other modifications to bathrooms.
- Lowering of, or making other modifications to, kitchen cabinets and equipment.
- Altering the location of, or otherwise modifying, electrical outlets and fixtures. Similarly, lowering light switches should all be included.
- Installing porch lifts and other forms of lifts. (Generally, this does not include elevators, as they may add to the FMV of the residence, and any deduction would have to be decreased to that )
- Modifying fire alarms, smoke detectors, and other warning systems.
- Modifying stairs.
- Adding handrails or grab bars whether or not in bathrooms.
- Modifying hardware on doors. A common application of this is replacing regular handles with lever handles.
- Modifying areas in front of entrance and exit doorways.
- Grading of ground to provide access to the residence.
To take advantage of the deduction, the taxpayer must demonstrate how the expenditure relates to his or her medical care. While a letter from a physician is recommended, the regulations do not require it. Many websites provide information to help those facing health challenges and excerpts from these websites that discuss home modifications may be useful.
For more information on qualifying home improvement medical expenses, contact a ShindelRock tax professional today.