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Medical Expense Tax Deductions

Medical Expenses, tax write-off for medical expenses, tax benefits for medical expenses, tax write-off for medical equipment, tax benefits for medical equipment, tax benefits for seniorsThe most common way people treat their health costs on their tax forms is by claiming an itemized deduction, including Medical Expense Tax deductions, on Schedule A of the 1040, for out-of-pocket medical expenses.  Using Form 1040 Schedule A, you can deduct expenses that are more than 10% of your Adjusted Gross Income (AGI).  However, those 65 and older can use the 7.5% threshold until 2016.  I found out the hard way that you may not qualify for a federal deduction, but you might get a tax break on your state tax return.  Since my medical expenses did not meet this threshold, I did not enter the data into my return. One year I was close to the threshold so decided to enter the data.  The expenses were not enough for a tax break that would result in an IRS refund, but when the data read into my state return, we did realize a benefit.  It is smart to enter the data so any potential benefit is applied to your return; federal or state.

Some medical expenses may also be claimed for your spouse or qualifying relative. Medical expenses include payments for services provided by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for medical purposes. They also include health insurance premiums, transportation to medical care, long-term care services, and long-term care insurance.  For a complete list of qualifying expenses and qualifying relatives, see IRS Publication 502.

Other possible tax deductions include professional home care such as hiring a nurse to assist with activities of daily living. For more info on tax credits, go to SeniorLiving.org “Caregivers and Tax Credits.”

There are a number of criteria that must be met for a caregiver to deduct medical expenses for the person under care.  The medical expenses must fall under IRS qualification requirements for the medical expense deduction.  To qualify for the deduction, the total cost of your unreimbursed medical expenses must exceed 7.5% of your adjusted gross income.

In addition to tax reporting, Medicare Part B may cover the expenses, or part of the expenses, for Durable Medical Equipment (DME) that your doctor prescribes for use in your home.  Only your doctor can prescribe medical equipment for you. Durable medical equipment meets the following criteria:

  • Durable (long lasting)
  • Used for a medical reason
  • Not usually useful to someone who isn’t sick or injured
  • Used in your home
  • Diabetes relies on blood sugar monitors and may qualify for medicare part b coverage of durable medical equipmentIn certain circumstances, the DME that Medicare covers includes, but isn’t limited to the following:
    • Air-fluidized beds
    • Blood sugar monitors
    • Canes (white canes for the blind aren’t covered)
    • Commode chairs
    • Crutches
    • Home oxygen equipment and supplies
    • Hospital beds
    • Infusion pumps (and some medicines used in infusion pumps if considered reasonable and necessary)
    • Nebulizers (and some medicines used in nebulizers if considered reasonable and necessary)
    • Patient lifts (to lift patient from bed or wheelchair by hydraulic operation)
    • Suction pumps
    • Traction equipment
    • Walkers
    • Wheelchairs

Many people have questions regarding Medicare coverage of lift chairs.  For those with Medicare Part B,The answer is partially.  It covers up to $300 toward the cost of the lifting mechanism.   The lifting mechanism must be operated electronically and move in a smooth fluid motion.   In order to receive this reimbursement, a prescription and a Certificate of Medical Necessity are both required. A Certificate of Medical Necessity must be completed by your physician. In the case of lift chairs, the Certificate of Medical Necessity must state that the insured cannot stand from any chair in their home without a lift chair.

Tax benefits of HIPPA, tax write-offs and tax deductionsThe tax benefits of HIPPA provide a schedule based on age to determine the amount of premium paid that can be applied as an unreimbursed medical expense for Federal tax purposes. Individuals can get tax benefits of HIPPA by applying their actual premium amount up to the limitation in the schedule.

The premium limitation amounts will be increased annually by an amount equal to the medical care cost component of the Consumer Price Index. For self-employed, the deduction is the same as any other health insurance. The deduction is effective starting with premiums paid in calendar year 1997.

Co-payments and deductibles paid by an individual out of their own resources can be counted towards your annual threshold.

The Act defines these services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services and maintenance or personal care services.

Under the Act, benefit triggers are used as a means of defining when the policyholder is considered a “chronically ill individual.” Tax benefits of HIPPA have the following triggers:

  • Activities of daily living (ADL) trigger – The individual is unable to perform (without “substantial assistance” from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity. Activities of daily living are: bathing, continence, dressing eating, toileting, transferring. At least 5 ADLs must be used in tax-qualified policies. Tax Qualified Indiana Partnership policies must use a 2 of 6 ADL trigger.
  • The 90 days are not a requirement for a 90-day elimination period. The licensed health care practitioner who is prescribing a plan of care must certify the person meets the ADL trigger now and will continue to meet the trigger for the next 90 days. If the person is certified as needing care for at least 90 days, then his/her health improves dramatically and is discharged from care prior to 90 days, the person is not penalized for the licensed health care practitioner’s error in judgment.
  • Cognitive Impairment – The individual requires “substantial supervision” to protect such individual from threats to health and safety due to “severe” cognitive impairment.
  • The individual must be re-certified annually as being chronically ill individual.
  • According to the Interim Guidance issued by the U.S. Department of Treasury, May 1997, substantial assistance means both hands-on and standby assistance. Hands-on assistance means the physical assistance of another person without which the individual would be unable to perform the ADL. Standby assistance means the presence of another person within arm’s reach of the individual which is necessary to prevent, by physical intervention, injury to the individual while the individual is performing the ADL.
  • Interim Guidance, May 1997, states substantial supervision means continual supervision (which may include cueing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the individual from threats of his/her health or safety. Severe cognitive impairment means a loss or deterioration in intellectual capacity that is (a) comparable to Alzheimer’s disease and similar forms of irreversible dementia, and (b) measured by clinical evidence and standardized tests that reliably measure impairment in the individual’s short-term or long-term memory; orientation as to person, place, or time; and deductive or abstract reasoning.
  • Interim Guidance, May 1997, established “safe harbors” for insurance companies when first refilling a tax qualified policy. Companies which issued policies prior to 1997 using ADL or cognitive impairment triggers, may use the standards from these policies when determining how a trigger is met (defining “needs assistance with”, “needs hands-on assistance”, “needs direct assistance”) in their new tax qualified policies. As a result, companies have a choice, when filing tax qualified policies, of either using the new definitions for “substantial assistance, substantial supervision, and severe cognitive impairment” or the definitions they used in their pre-1997 policies. (Odds are high safe harbors will be eliminated upon development of regulations by the U.S. Department of Treasury.) The remainder of the requirements under the Act must still be met (i.e. using at least 2 of 5 out of a list of 6 ADLs, 90 day certification by a licensed health care practitioner).

Tax benefits of HIPPA paid by a policy for long term insurance will not be counted as taxable income to the policyholder; and premiums paid for “tax qualified” policies can be counted as a non-reimbursed medical expense for those itemizing their deductions for federal income tax purposes.

  • A “Tax Qualified” policy is any policy issued prior to January 1, 1997. These policies are grandfathered under the Act. For group policies, if the master policy was issued prior to 1997, then it is grandfathered. This means all certificates issued under the group policy, even after January 1, 1997, would be considered tax qualified certificates (as long as the master policy does not changed to add additional benefits). Policies issued after January 1, 1997, must meet a set of standards described in the Act in order to be “Tax Qualified” policies. The following are exceptions for changes to the master policy and are not treated as a material change:
  • A policyholder’s exercise of any right provided under the terms of the contract as in effect on 12-31-1996, or a right required by applicable state law to be provided to the policyholder.
  • A change in the mode of premium payment (for example a change from monthly to quarterly premiums).
  • In the case of a policy that is guaranteed renewable, a classwide increase or decrease in premiums.
  • A reduction in premiums due to the purchase of a long term care insurance policy by a family member of the policyholder.
  • A reduction in coverage (with corresponding reduction in premiums) made at the request of a policyholder.
  • The addition, without an increase in premiums, of alternative forms of benefits that may be selected by the policyholder.
  • The addition of a rider (including any similarly identifiable amendment) to a policy issued prior to 1/1/97 in any case in which the rider, if issued as a separate contract of insurance, would itself be a tax-qualified long term care insurance contract.
  • The deletion of a rider or provision that prohibited coordination of benefits with Medicare.
  • The effectuation of a continuation or conversion of coverage right provided under a group contract following an individual’s ineligibility for continued coverage under the group contract.

Tax laws change frequently so please go to IRS Publication 502 to verify the above reflects latest information regarding triggers, thresholds, and other specifications.

A complete list of deductible medical expenses is available in IRS Publication 502: Medical and Dental Expenses.

wheelchair ramp, bathroom modification, kitchen modification, safety upgrades, home modification, home renovation, writing off home renovations, tax deductions for home renovation, deductions for home modificationAs the average stay at a nursing home or assisted care facility is only two years, an increasingly popular trend, called aging in place, is the new lifestyle choice for senior citizens. Aging in place revolves around modifying the home to accommodate any limitations you have or anticipate. The good news is that you may qualify for deducting these home renovations, or part of the total cost, on your income tax return.

In addition to the tax credit for in home care, you may also get a credit for the renovations as a necessary medical item. The renovation costs count toward the tax year threshold requirement of your adjusted gross income for medical expense deductions. Renovations costs can add up quickly, so meeting this minimum requirement may be easier than you think.

Although The Health Insurance Portability and Accountability Act of 1996 (HIPAA) won’t cover a total home renovation from top to bottom, it can provide some needed financial support for necessities that aren’t extravagant in nature.

The Congressional Budget Office says, HIPAA allows a taxpayer (or his or her dependent) who incurs expenses for necessary home modifications and has a specified degree of physical or cognitive impairment to deduct them from taxable income along with other medical and dental costs. As worded in HIPAA, qualifying expenses include nursing home care; home-based care; medical equipment and supplies, such as oxygen; and alterations to a home, such as grab bars in the bathroom. However, only the portion of the alterations that does not add to the market value of the home is eligible for the deduction. So adding a new master bedroom to the first floor of a two story home would not meet qualification requirements since this would add to the overall value of your home. If you have questions regarding specific modifications,

Tax laws change constantly, to determine whether your home alteration qualifies, check the latest version of IRS Publication 502.

#HIPPA #Medicare #Medicarepartb #durablemedicalequipment #medicalexpensededuction #activitiesofdailyliving #homerenovation #taxdeductions #aginginplace #indepedentliving

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