Just which medical expenses can be deducted?

In a previous blog, the the whole idea behind medical expense deductions and when to deduct and whose expenses to include was discussed. In this article, we’ll look more closely at specifically which expenses can and cannot actually be deducted.

With help from the examples below, you’ll be able to gather all of your documentation for qualifying expenses and be ready for that big moment for the tax deduction on Schedule A. However, before you get too far into the process, a word of caution. Only about 19% of taxpayers submitting an itemized returns claimed a deduction for medical expenses. Just because an expense is deductible, does not mean that you will realize a tax savings. You must first complete page 1 of the 1040 and compute your Adjusted Gross Income (AGI) and take that amount and multiply it by 7.5%. You take this amount and subtract it from your medical expenses and only what is left is what is deductible.

For example let’s say you paid out $5,000 in qualified medical expenses. However, your AGI is $100,000. You must take 7.5% ($7,500) and subtract this first. As you can see you are shy by $2,500. Thus, no deduction is allowed.

Here is another example. Let’s say you still have $5,000 in qualified medical expenses. Except now your income is $50,000. 7.5% of $50,000 is $, 3,750. Thus, in this case you can deduct $1,250 ($5,000-$3,750).

Hold on though, that’s only half the battle. There is another test. You must have enough other itemizations (i.e., home mortgage interest, real estate taxes, charitable contributions, etc.) to beat the standard deduction. Therefore, you may technically have enough medical expenses, but if you don’t have enough “itemizations” to complete Schedule A to beat the standard deduction you are still out of luck.

Included Medical Costs—a Closer Look

Although the expenses covered are far too numerous to name here, some examples of items that may be overlooked when calculating your medical expenses include:

  • Devices such as crutches, wheel chairs, glasses, dentures, etc.

  • Bandages

  • Braille books and magazines

  • Fertility enhancement

  • Pregnancy test kits

  • Birth control pills

  • Guide dogs

  • Health insurance premiums including Medicare Parts B & D and certain type of Long Term Care Insurance policies

  • Stop smoking programs (except over-the-counter medicines)

  • Weight loss programs if prescribed by a doctor to treat a specific disease such as obesity, hypertension, etc.

  • Transportation expenses to receive medical care

  • Another item to be deducted, with careful calculations, is permanent capital improvements to a home to aid you or your dependents. However, if such improvements actually increase the value of your home you must first subtract any increase in home value from the costs incurred. Only the amount left, if any, is deductible.

Medical Expenses Not Included

On the contrary side, there are certain medical expenses which can’t be deducted. Oftentimes, some of these come as surprise to taxpayers.

  • Health club dues. Although you can deduct, as mentioned earlier, for weight loss programs prescribed for a diagnosed medical condition, these may not include fees for the health club

  • Funeral costs

  • Illegal medical procedures

  • Over-the-counter medicines

  • Nutritional supplements (unless recommended by a medical practitioner as a treatment for a specific condition)

  • Health Savings Accounts (HSA) and Medical Savings Accounts (MSA).

  • Flexible Savings Accounts (FSA).

  • Health Insurance Premiums funded with pre-tax premiums under IRC 125 (i.e., “cafeteria plans”).

  • Health Insurance Premiums for the self-employed.

This article is not meant to be an extensive explanation on IRC 213, and has been made to be as informative as possible without diving into every specific situation. Thus, considering the “gotcha’s” in this provision, I highly encourage you to do further research and/or seek professional guidance before tackling this issue yourself.