Detailed Guide to Medical Expenses as Tax Deductions

While certain medical expenses are deductible on your Federal tax return and others are not, there are some specifics on the ones that are. This is a detailed summary of the medical expenses that are deductible on your tax return; you could be missing out on an important tax deduction simply for lack of knowledge!

Medical Insurance:

Medical insurance includes standard health policies, whether the benefits are paid to the taxpayer or directly to the provider of the services. In addition, the premiums paid for membership in health maintenance plans are deductible as medical insurance, as are supplemental payments for optional Medicare coverage. However, certain insurance policies that pay a specific amount each day or week the taxpayer is hospitalized are NOT considered medical insurance and the premiums are NOT deductible. You will have to refer to the specifics of your policy to figure this out.

Premiums paid for long-term care insurance policies are also deductible medical expenses, but only up to a specific amount which a change each year and are based on the age of the taxpayer. Self-employed taxpayers are allowed, with certain limitations, a deduction in the calculation of their AGI (adjusted gross income) equal to 100% of the medical insurance premiums paid for themselves and their families. Long-term care insurance premiums, up to a specified amount, and Medicare premiums are considered health insurance for this purpose. If a deduction is taken for these items is used to calculate AGI, then these same expenses are excluded from the medical expense deduction on Schedule A, as you cannot use the same expenses twice.

Medications

Prescription medicines and drugs as well as insulin are the only drugs deductible as a medical expense on your tax return. No deduction is allowed for medications or drugs purchased illegally from across borders such as Mexican and Canadian. Nonprescription medicines like over the counter medications, even if recommended by a Dr. are NOT deductible as a medical expense. However, certain employer reimbursement plans may exclude nonprescription drugs from income.

 

Capital Expenditures:

If the taxpayer purchases special equipment and has it installed in their home for medical reasons this may also be deductible. Aside from other capital expenditures, allowable amounts are deducted fully in the year the item is purchased; the cost of the item does not have to be depreciated. If the expenditure is an improvement that increases property value, the deduction is limited to the amount by which it exceeds the value of the property. If the value of the property does not increase then the entire amount is deductible. The cost to maintain the item is also deductible provided there is still a need for the item for medical reasons.

Example: an elevator is installed in the taxpayer’s home for medical reasons. It costs $6,000, thus increasing the property value by $4,000. The taxpayer is allowed the deduction of $2,000 ($6,000-$4,000) the excess of the cost of the equipment over the increase in property value.

Transportation:

Only those expenses primarily for and necessary to medical care are deductible on your Federal tax return. This includes the amounts paid for taxis, trains, buses, airplanes, and ambulances. There is also a deduction for out-of –pocket expenses related to the taxpayer’s personal automobile that are deductible as well; such as oil and gasoline. Maintenance and repair are not deductible and neither is the insurance. 

If the taxpayer decides to deduct costs for his or her personal automobile, there is an alternative way of doing this. A standard mileage rate per mile can be used to calculate the deduction. In addition to any of the above deductions parking and toll fees are also deductible medical expenses when it comes to transportation. If the costs are related to a dependent child, the parent is allowed the deduction.

Lodging for Medical Care:

There is a deduction of up to $50 per night, per person, that is allowed for the purpose of medical expenses related to lodging; provided that it is a trip primarily for and necessary to medical care (provided by a physician or licensed hospital). The deduction is allowed for the patient and an individual accompanying the patient such as a parent or guardian of a child. No deduction is allowed for recreational or meal costs while on the trip.

Health Savings Accounts (HSAs)

HSAs combine tax deductible contributions to medical spending accounts with qualifying high-deductible medical insurance. Regular health insurance with low deductibles and co-payments do not qualify for use with HSAs. Personal contributions to an HSA are limited to certain dollar amounts depending on age and whether is for individual or family. Contributions are treated as a deduction to AGI and not on Schedule A just as contributions to IRAs.  For more information on HSAs consult the IRS website or a tax research service.

I hope this information was useful to those that are in question about whether or not your medical expenses can be deducted on your tax return.  However, sometimes it is wiser to use the standard deduction rather than an itemized deduction. If your medical expenses surpass the standard deduction then it would be in your best interest to use the higher of the two.