Home improvements can be inspired by the need to create that ideal environment, increase market value or sometimes it’s medically necessary. There are however, special benefits for people with handicaps or disabilities. Medical expense deductions are available for certain improvements or equipment installed in the home.
If you want to know what medically necessary home improvements the IRS deems worthy of a deduction, check out IRS Publication 502, which also includes a capital expense worksheet to help you determine the amount of the capital expense that you can include in your medical expenses.
According to JKLasser.com medical-related improvements may be treated as a currently deductible medical expense. However, the cost of the improvements are a deductible expense to the extent they do not increase the value of the home, points out the article. There’s another catch too, the enhancement cannot be something that merely makes life more palatable for a certain condition, but a change that is required by a doctor to address a specific illness or condition.
JKLasser offers this illustration, “Say your doctor prescribes swimming to alleviate a back condition and you install an in ground pool. The pool costs $15,000 and increases the value of your home by $10,000, so $5,000 (the amount that does not increase value) is a deductible medical expense.”
The IRS Tax Guide for Seniors, Publication 554, says, “You can include in medical expenses amounts you pay for home improvements if their main purpose is medical care for you, your spouse, or your dependent. Only reasonable costs to accommodate a home to your disabled condition (or that of your spouse or your dependent(s) who live with you) are considered medical care. Additional costs for personal motives, such as architectural or aesthetic reasons, are not medical expenses.”
A recent MoneyWatch article highlights how the medical expense deduction game can be played. It cites one case, in which a medical expense deduction for the construction of a new home with special features (such as ramps, special entrances, air conditioning, an intercom system and a built-in stereo system) for an individual with multiple sclerosis was limited to $900. According to the article, “the proof of the extent to which the costs of the special features failed to increase the market value of the house was determined to be unsubstantiated. However, a $900 deduction was allowed for a portion of the cots that were determined to be allowable medical expenses.”
According to the MoneyWatch report, in another instance, taxpayers were not allowed to deduct expenses incurred in renovating a home for use by a dependent relative because they failed to prove that the value of the house did not increase in an amount equal to the cost of the capital improvements.
Yet another example comes from IRS Pub 502, “John has arthritis and a heart condition. He cannot climb stairs or get into a bathtub. On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. John can include in medical expenses the entire amount he paid.”
If you’re wondering what sort of things might get you a deduction, Pub 502 says, “improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. These improvements include, but are not limited to, the following items.
- Constructing entrance or exit ramps for your home.
- Widening doorways at entrances or exits to your home.
- Widening or otherwise modifying hallways and interior doorways.
- Installing railings, support bars, or other modifications to bathrooms.
- Lowering or modifying kitchen cabinets and equipment.
- Moving or modifying electrical outlets and fixtures.
- Installing porch lifts and other forms of lifts (but elevators generally add value to the house).
- Modifying fire alarms, smoke detectors, and other warning systems.
- Modifying stairways.
- Adding handrails or grab bars anywhere (whether or not in bathrooms).
- Modifying hardware on doors.
- Modifying areas in front of entrance and exit doorways.
- Grading the ground to provide access to the residence.
Making home improvements usually don’t come cheap. Find out if Uncle Sam can help foot the bill.