Watch Your Wallet! Medical Deductions (Part 1 of 2)
Watch your wallet, medical deductions you should not overlook
Have you been paying medical bills and wondering how they can be made to work for your wallet? The “Tax Cut and Jobs Act” (TCJA) passed in Dec 2017 reinstates the 7.5% of adjusted gross income threshold for medical deductions. While we are familiar with the usual expenses of doctors, dentists and prescription medicines, here are some other costs that you can deduct.
Nursing home care and assisted living
The median annual cost in 2018 for an assisted living facility was $48,000 and for nursing home care was over $100,000. If these expenses could be deducted on your tax returns, you could substantially reduce your income tax liability and your financial burden from these costs. For a married couple with $130,000 of pretax income including social security, a year’s worth of medical deductions from nursing home care may save more than $8,000 in state and federal taxes.
Long term care provisions were added to the Internal Revenue Code in 1996, and the Internal Revenue Service (IRS) has since then provided guidance and safe harbor definitions for costs that you can deduct. You can include in medical expenses amounts paid for “qualified long-term care services”. “Qualified long-term care services” include diagnostic, therapeutic, and rehabilitative services, as well as personal care services, which are required by a chronically ill individual and provided as part of a plan of care prescribed by a licensed health care practitioner.
Sometimes it is necessary to modify our homes and residences to make them easier to live in. Did you know that costs like installation of a chair lift, handrails, support bars, kitchen and bathroom modifications to accommodate disabilities or aging in place are all tax deductible items? Any home modifications including installation of entry and exit ramps, home modifications, grading of ground can all be deducted as part of your medical costs.
Paying for a parent?
What if an elderly person is not living on their own, but living with a child and there have been medical costs incurred? Not only can the child get to deduct any costs for modifying their home, but they can also deduct out of pocket medical costs of the parent even if the parents file their own taxes and are not their dependents. The parents in this case typically have a lower income than the children.
So, paying medical expenses may be burdensome, but the IRS provides many ways by which these can help alleviate your tax burden. Make sure you take advantage of the opportunity. Watch this space as we bring you more tips for turning life’s challenges into tax savings opportunities.