Are you planning to make substantial home improvements in the coming year? Normally, you can’t deduct home improvement expenses on your personal tax return. However, you may be able to deduct the costs of medical improvements to your home.
It may be worth doing, but first there are several tax law obstacles to overcome.
Under current law, you may only deduct medical expenses in excess of 10 percent of your adjusted gross income (AGI). If you don’t clear that 10 percent for the year, you get no deduction. This is a high bar for many taxpayers.
To determine if you qualify for a deduction, add up the unreimbursed medical expenses that satisfy the tax law requirements. An expense counts toward the 10 percent only if it’s for medical care for you, your spouse or your dependent. Conversely, an expense that is just beneficial to your general health rather than a specific health issue, or one that’s done for personal motives (e.g., architectural taste) isn’t deductible.
When a homeowner makes an improvement for medical reasons, the deductible amount is limited to the cost above the increase in the home’s value. For instance, if a $10,000 improvement increases the value of your home by $4,000, $6,000 counts to the deduction. Improvements made by tenants are fully deductible, as they don’t benefit from the increase in the home’s value.
What sort of home improvements qualify?
An allergist may recommend installing central air conditioning or a swimming pool to alleviate a child’s asthma. Or, you might build an elevator or bathroom on a lower floor to benefit someone with a heart condition. Other improvements could include (but aren’t limited to):
- Making doorways larger
- Adding entrance or exit ramps
- Installing railings
- Modifying electrical outlets and warning systems
Don’t leave matters to chance. If you qualify for a deduction, obtain a written statement from a physician prescribing the improvement, and an independent appraisal of the increase in the home’s value.