Exploring the vast world of medical tax deductions
Individuals with big medical bills got a tax win in late 2020. Taxpayers who itemize on Schedule A can continue to deduct the amount of qualifying medical expenses that exceed 7.5% of adjusted gross income. The AGI threshold was scheduled to climb to 10% beginning in 2021, but instead Congress permanently kept it at 7.5%.
You can claim medical expenses that are not reimbursed by insurance for yourself, a spouse and your dependents. To qualify as a deduction, the expense must be incurred primarily to alleviate or prevent a physical or mental disability or illness.
The broad list of eligible expenses includes out-of-pocket payments for medical services rendered by doctors, dentists, optometrists and other medical practitioners. It also encompasses mental health services; health insurance premiums (including Medicare Parts B and D); annual physicals; prescription drugs and insulin (but not over the-counter drugs); hearing aids; and transportation to and from the doctor’s office.
For more information about what qualifies, see IRS Publication 502.
If you or your spouse require long-term care, you may be able to deduct the unreimbursed cost for in-home care, assisted living and nursing home services as medical expenses.
The long-term care must be medically necessary for a chronically ill person. A person is considered chronically ill when at least two activities of daily living cannot be performed without help for 90 days or more.
Anyone in need of long-term care because of dementia or another cognitive impairment is also considered chronically ill if substantial supervision is needed to protect the individual’s health and safety. The chronic illness must be certified by a licensed health care practitioner. The cost of meals and lodging at an assisted living facility or a nursing home also counts if you are there mainly for medical care.
If you purchased a long-term care insurance policy, a portion of your premium payment qualifies as a medical expense. The deduction is capped based on age. For 2020 returns, the maximum per-person limits are $5,430 for taxpayers 71 or older; $4,350 for taxpayers 61 to 70; $1,630 for individuals who are 51 to 60; $810 for people 41 to 50; and $430 for those 40 and younger. These amounts are a bit higher for 2021: $5,640, $4,520, $1,690, $850 and $450, respectively.
The cost of certain home improvements to accommodate a disability or physical illness may also be deducted as a medical expense — for instance, ramps, wide doorways or entrances, railings and wheelchair lifts. But an elevator is generally not deductible because it adds value to the house.
Weight reduction programs that are ordered by doctors to treat obesity or hypertension or alleviate another ailment are deductible medical expenses.
Veterinary costs for a service dog to assist the visually impaired and others with physical disabilities are eligible medical deductions. The same is true for the cost to buy and train the dog, plus feed and groom it. An emotional support animal also counts if it’s needed primarily to alleviate a mental disability or illness.