If you were required to make improvements or modifications to your home for medical reasons, you may be able to deduct the expenditures on your income tax return. There are some very specific rules which must be followed but if you are willing to take the time and put forth the effort in many cases the payoff in reduced income taxes would be well worth your effort.
First, it must be more beneficial for you to itemize on the Schedule A rather than using the standard deduction. Your home modifications must have been made for medical reasons and must not have been reimbursed by your employer or covered by insurance. Additionally, the expenses must exceed 10% of your adjusted gross income (AGI) in order to be deductible on the medical portion of the Schedule A. If you are 65 or older in 2013, you must exceed 7.5% of your AGI rather than the 10%. This exception is good through the end of 2016.
Deductible home modifications include the installation of special equipment, changes made to your home to accommodate a wheelchair, special bed or other facilities medically required. However, you may not deduct the entire cost of the medical equipment or improvements only the portion of the costs that exceeds the increase in your home’s value due to the improvements. For example, if you need to add a bathroom costing $12,000 on the lower floor of your home to accommodate a family member and the value of your home increases by $8,000 your allowable deduction is only $4,000.
To verify the medical need for your home modification improvement, get a statement from your doctor explaining the need for the expenditure and make sure you keep all the receipts. It is much better to maintain proof and not need it rather than not having proof if the IRS requests verification of the modification expenses.
There are numerous expenditures which generally do not increase the value of a home; therefore 100% may be deducted on a Schedule A after the 10% (or 7.5%) floor has been reached. Some of the modifications which do not increase the value of a home include:
- Widening hallways, constructing ramps, modifying the ground near an entryway or widening doors (interior or exterior) to accommodate wheelchairs
- Modifying stairs, door hardware, kitchen cabinets or other equipment to accommodate wheelchairs
- Installing support bars, railings or other safety equipment in bathrooms or other areas of your home
- Moving electrical outlets to accommodate medical equipment
This is just a partial list but the important thing is to maintain accurate records as your income tax preparer needs all the information he or she can have to make sure you receive all the deductions you are legally entitled to on your tax return.
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