Key Tax Rules for Deducting Home Improvements

When you can claim a medical deduction

Can you claim a tax deduction for a home improvement? That question is not as crazy as it sounds. It may be possible to write off part of the cost of a home improvement needed for medical reasons. However, be forewarned that there are significant tax obstacles to overcome.

Main ground rules: Under current law, your annual deduction for medical and dental expenses is limited to the amount of unreimbursed qualified expenses exceeding 10% of your adjusted gross income (AGI). Prior to 2017, the limit was 7.5% of AGI for individuals age 65 or older, but this tax reprieve has been eliminated. Example: Suppose your AGI is $100,000 and you have $9,500 in unreimbursed medical expenses for the year. In this case, your medical deduction is zero.

As a result, it is important to count every last medical expense that helps you clear the 10%-of-AGI floor on your 2017 return. Any extra expenses you find will increase your deduction.

To qualify as a deductible medical expense, the cost must be incurred primarily to prevent or alleviate a physical or mental defect or illness. Conversely, an expense that is merely beneficial to your general health or well-being is not deductible. For example, if you build an in-ground pool in your backyard for your children’s pleasure, no deduction is allowed, even though they are getting valuable exercise.

However, you can deduct a portion of the cost attributable to a swimming pool if you or your spouse will be using the pool to alleviate arthritis or some other specific illness. For a medically necessary improvement made by a homeowner, the deductible amount is equal to the cost above the resulting increase in the home’s value. In addition, annual maintenance costs qualify for the deduction. Note: The full cost of any qualified improvements, plus maintenance costs, is deductible if paid by tenants.

Some other common examples of home improvements that may be deductible as medical expenses include air-conditioning installed to alleviate a child’s asthma, an elevator constructed for an adult with a heart condition and special modifications made for a disabled person.

It is generally recommended that you obtain a written appraisal from an independent real estate expert establishing the increase in your home’s value due to the renovation. Also, if a physician prescribes a home improvement to alleviate a medical condition, be sure to retain a copy of the statement in writing.

Be aware that this is only a general overview of potential medical deductions for home improvements. Tax benefits may be realized in certain other respects. Consult your KOS Tax Adviser concerning your personal situation.