The 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:
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.
The 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:
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.
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.
As 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.
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