How to claim a medical deduction for home improvements

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(MoneyWatch) The Internal Revenue Code provides numerous benefits for persons with handicaps or disabilities. These benefits include medical expense deductions for certain improvements or equipment installed in the home.

Persons with a handicap or disability may include as a medical expense deduction all or part of the amounts paid for special equipment installed in the home or for home improvements. This may be allowed as long as the main reason for the improvements is medical care. Under certain conditions, medical expenses can be tax deductible.

Medically necessary home improvements

The amount of medically necessary home improvements that you can deduct is limited, however, to the extent that such expenditures exceed the amount of the increase in the value of the property affected. If the value of the property has not increased, then the entire cost of the improvement is deductible as a medical expense. In one case, a medical expense deduction for the construction of a new home with special features (such as ramps, special entrances, air conditioning, an intercom system and a built-in stereo system) for an individual with multiple sclerosis was limited to $900. Proof of the extent to which the costs of the special features failed to increase the market value of the house was determined to be unsubstantiated. However, a $900 deduction was allowed for a portion of the costs that were determined to be allowable medical expenses.

In another case, the taxpayers were not allowed to deduct expenses incurred in renovating a home for use by a dependent relative because they failed to prove that the value of the house did not increase in an amount equal to the cost of the capital improvements. In another case, the expenses of installing a health spa upon a doctor's advice were not deductible to the extent that the spa increased the value of the taxpayer's residence.

Medically necessary home improvements that qualify for this deduction are outlined in IRS Publication 502 - Medical and Dental Expenses. Examples of expenses made for the purpose of accommodating a personal residence for people requiring special access include:

- Construction of entrance or exit ramps to the residence

- Widening doorways at entrances or exits to the residence

- Widening or otherwise modifying hallways and interior doorways

- Installing railing, support bars or other modifications to bathrooms

- Lowering or making other modifications to kitchen cabinets and equipment

- Altering the location or otherwise modifying electrical outlets and fixtures

- Installing porch lifts and other forms of lifts (an elevator, however, may also add to the fair market value of the residence and any deduction would have to be decreased to that extent)

- Modifying fire alarms, smoke detectors and other warning systems

- Modifying stairs

- Adding handrails or grab bars whether or not in bathrooms

- Modifying hardware on doors

- Modifying areas in front entrance and exit doorways

- Grading of ground to provide access to the residence.

This list is just a sample of deductible improvements and there are many more similar expenditures that may be incurred in accommodating a personal residence to the handicapped condition of a taxpayer, the taxpayer's spouse or dependents who reside there. In addition, certain expenditures unrelated to the residence (such as the cost of a wheelchair lift and its installation in a van) may qualify as deductible medical expenses.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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