While there are only two things in life that are certain (death and taxes, of course), the “tax industry” wants to ensure that you keep on living. The IRS wants taxpayers to hang around as long as possible in order to ensure an ongoing, steady flow of taxes into the government. After all, the IRS needs your income taxes! More people who are alive and well and working can only mean more revenue in store for the IRS.
But staying alive entails taking care of one’s health. With the rising costs of health care these days, it certainly pays to have your own hospital or health care facility, so to speak, in the comforts of your own home. In fact, we’ve got family friends who have successfully transformed their home to better cater to their needs as they age. More and more people appear to be doing this nowadays, and this is the case particularly among the elderly. It may be enlightening to know that when people invest money on home improvement projects for the purpose of improving their health, this could mean less taxes paid to the IRS. But how do we know which kind of home improvements are tax deductible?
Which Health Care Home Improvements Are Tax Deductible?
I’ve discovered that a medical expense which results into a capital improvement in one’s home may be deducted by an individual. But for this to work out, certain conditions will have to be met:
- The expense must clearly be for a medical purpose.
- The home improvement made must be permanent.
- Any increase in property values must not be greater than the medical expense.
So let’s go through some of these matters in more detail:
#1 The expense you generated must be medical in nature. An expense is considered medical if it is incurred for purposes of identifying, curing, soothing, healing, treating or preventing an illness, disease or health condition. Now if your expense addresses any other needs you have (say it’s intended for general recreation or leisure), and the health benefits are but an incidental result, then your expense may not qualify as a deductible.
Here’s an example: suppose you built a swimming pool in your home. Well, this wouldn’t qualify as a deductible medical expense even though the members of the household who use the pool would naturally become healthier and more physically fit. The burden of proof to establish the right to a deduction as a medical expense falls on the taxpayer. If you decide to deduct your pool expenses, then be ready for the IRS to come knocking. The IRS will make sure that the medical nature of the improvement is genuine and not merely a ploy. They’re going to ask to see a doctor’s prescription as proof. As for the swimming pool, there have been cases where doctors of patients with arthritis have prescribed swimming to alleviate the discomfort experienced by their patients.
#2 The home improvement you’ve made must be permanent. Your improvement is permanent if it forms an integral part of your home such that you’d end up destroying your property to get it removed. Continuing with the example of the swimming pool — it’s pretty obvious that removing a pool from your property will cause damages and will require repairs. In one other actual case, a doctor prescribed the installation of a centralized air-conditioning system in one home due to a patient’s medical condition. Something like this is considered a permanent improvement and can be allowed as a medical expense deduction.
#3 Your medical expense must be greater than any property value increase resulting from the improvement. Most home improvements will cause your home to appreciate in value. Now it seems pretty stingy for the IRS to begrudge a homeowner their tax deduction if their home improvements happened to bring up their property value. The reasoning here is that the IRS doesn’t allow “double benefits”, and if you happen to get an asset value increase along with a tax deduction, then that’s construed as a double benefit. You can’t have your cake and eat it too, according to the IRS. You can therefore get full, partial or no deduction based on the amount of increase in your property’s value.
Calculating A Medical Expense Deduction Due To A Home Improvement
The sample Capital Expense worksheet below shows how a medical expense deduction is calculated for a health care home improvement that costs $7,000:
CAPITAL EXPENSE WORKSHEET:
1. Enter the amount you paid for the home improvement …………………………….. $ 7,000
2. Enter the value of your home immediately after the improvement ………………. $105,000
3. Enter the value of your home immediately before the improvement ……………. $100,000
4. Increase in value of home due to the improvement (subtract line 3 from line 2) … $ 5,000
- If line 4 is more than or equal to line 1, you have no medical expenses to deduct due to home improvement; stop here.
- If line 4 is less than line 1, go to line 5.
5. Subtract line 4 from line 1. These are your medical expenses due to the home improvement .. $ 2,000
The result in #5 may be tax deductible.
If you’re contemplating pursuing this tax deduction, you’ll have to consult a property appraiser for any increases on your property value. Remember that the burden of proving and establishing a deductible expense lies with the taxpayer, and the IRS can be very strict about allowing such deductible expenses.
Contributing Writer: Earl Fischer
Created August 5, 2007. Updated June 24, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.