My father paid for an addition onto my house so my mom could come live with me. She was wheel chair bound so we built a handicapped ramp from the garage into the house. The addition has a large bedroom for her with a handicapped bathroom. His accountant is allowing him to write off the whole cost as a medical expense for her. Her living with me is a substitute for the nursing home which is tax-deductible as a medical expense. So the building allows him a one time deduction. Maybe if she is your dependent you can do the same.
For the relevant tax code, IRS Publication 502 covers the issue of medical deductions.
Unfortunately, medical remodeling is a very complicated type of deduction, dependent upon many factors, and what one accountant might "allow" is often just an opinion that I have heard referred to as "putting your best foot forward and taking a position". That DOESN'T mean that the IRS will agree with it in an audit.
By ALL means, unless you are absolutely sure of what you're doing, please confer with a certified tax preparer, enrolled agent, accountant or tax attorney. Just some of the things to consider:
(1) medical necessity - you can't just think it's necessary, or make it nice for someone's comfort, it should be documented buy some type of legal medical evaluation that it is needed by the patient. Proper documentation could be a critical element in green lighting a deduction. For example, a handicapped bathroom for an infirm or disabled person may be justifiable, but an unreasonably extra large bedroom for comfort, or an attached living/sitting room might not be considered deductible.
(2) property value increase - it would most likely be necessary to have a legitimate property valuation both before and after the remodeling. This means documented, in writing, by a person or company licensed to do such estimations, not a realtor. If the addition adds value to the home in question, the amount of the increase value is not deductible. For example, if $10,000 is spent even on what might be a legitimate medical remodel, but the value of the house is increased by $10,000, there is no deduction. If, on the other hand, $20,000 is spent and the home value is increased by $12,000 only, then $8,000 may be deductible.
Now, some handicapped remodels are considered a detriment to the value of the home, many realtors believing that those additions have to be undone before a sale. Wheelchair ramps are a good example. If this happens to be the case, or if the evaluations warrant no increase in value, the full amount could be deductible.
(3) another very complicated layer is whether or not the individual is a dependent. You can't just take anyone's medical expenses. Usually people on Social Security make in excess of the income requirements to be a dependent, but there are exceptions to this policy also. You can see how this can get very complicated. See IRS Publication 501 regarding who is a dependent.
(4) where is this deduction taken? Well, you have to be able to itemize your deductions on Schedule A. And there is a medical exclusion. This means that, based on your income, each person is expected to pay a certain percentage of their earnings toward medical care. Currently, the exclusion is 7.5% of your adjusted gross income (AGI). But that's only part of it. Further down on Schedule A, after all of the other expenses have been tallied, there is an additional exclusion of 2% of AGI off the Schedule A subtotal.
This is only an overview to illustrate the difficulties inherent in taking medical deductions. It doesn't mean you can't take them, it just means you need to do it right. The one thing to be learned by this is that most folks will need assistance in determining whether or not this is a deduction for them.
ps - IRS publications are easily available online. You can even print and highlight questionable areas which will allow you to ask your tax professional more specific questions that apply to you directly. It will also save time because you will already know some of the information that s/he needs to find out.
Another of our members, akaughter, has alerted me to the fact that I need to clarify a couple of points regarding my post above.
1st, on number 3, in terms of determining whether or not someone can qualify as a dependent (necessary to take someone else's medical expenses), Social Security isn't included as part of the income test. So, if the persons only income is SS, it doesn't matter if their benefit is more than the maximum allowed to qualify as a dependent. However, the next test is support. And here, SS benefit IS counted as to whether or not you provide 50% support to the individual. This is just another reflection of how specific determining dependency is.
As to number 4 in regards to the question by the original poster, I jumped to the conclusion that one of the caregivers of MIL, either the taxpayer or the spouse is 65 or over. If so, what I wrote was accurate. Starting in tax year 2013, the medical exclusion, which has been 7.5% for eons, has been increased to 10%. A special temporary exemption continuing the 7.5% was put in place through the 2016 tax year, if either the taxpayer or spouse is 65 or over.
Thanks, akd, you don't want any misunderstandings.
Btw, the new floor for medical deductions is now 10%, up from the previous 7.5 percent effective this year, 2013. Either the spouse or primary taxpayer must already be 65 in 2013 to qualify for the grandfathering period. In 2016, the full flat 10% applies the everyone for medical deduction.
Unfortunately, medical remodeling is a very complicated type of deduction, dependent upon many factors, and what one accountant might "allow" is often just an opinion that I have heard referred to as "putting your best foot forward and taking a position". That DOESN'T mean that the IRS will agree with it in an audit.
By ALL means, unless you are absolutely sure of what you're doing, please confer with a certified tax preparer, enrolled agent, accountant or tax attorney. Just some of the things to consider:
(1) medical necessity - you can't just think it's necessary, or make it nice for someone's comfort, it should be documented buy some type of legal medical evaluation that it is needed by the patient. Proper documentation could be a critical element in green lighting a deduction. For example, a handicapped bathroom for an infirm or disabled person may be justifiable, but an unreasonably extra large bedroom for comfort, or an attached living/sitting room might not be considered deductible.
(2) property value increase - it would most likely be necessary to have a legitimate property valuation both before and after the remodeling. This means documented, in writing, by a person or company licensed to do such estimations, not a realtor. If the addition adds value to the home in question, the amount of the increase value is not deductible. For example, if $10,000 is spent even on what might be a legitimate medical remodel, but the value of the house is increased by $10,000, there is no deduction. If, on the other hand, $20,000 is spent and the home value is increased by $12,000 only, then $8,000 may be deductible.
Now, some handicapped remodels are considered a detriment to the value of the home, many realtors believing that those additions have to be undone before a sale. Wheelchair ramps are a good example. If this happens to be the case, or if the evaluations warrant no increase in value, the full amount could be deductible.
(3) another very complicated layer is whether or not the individual is a dependent. You can't just take anyone's medical expenses. Usually people on Social Security make in excess of the income requirements to be a dependent, but there are exceptions to this policy also. You can see how this can get very complicated. See IRS Publication 501 regarding who is a dependent.
(4) where is this deduction taken? Well, you have to be able to itemize your deductions on Schedule A. And there is a medical exclusion. This means that, based on your income, each person is expected to pay a certain percentage of their earnings toward medical care. Currently, the exclusion is 7.5% of your adjusted gross income (AGI). But that's only part of it. Further down on Schedule A, after all of the other expenses have been tallied, there is an additional exclusion of 2% of AGI off the Schedule A subtotal.
This is only an overview to illustrate the difficulties inherent in taking medical deductions. It doesn't mean you can't take them, it just means you need to do it right. The one thing to be learned by this is that most folks will need assistance in determining whether or not this is a deduction for them.
ps - IRS publications are easily available online. You can even print and highlight questionable areas which will allow you to ask your tax professional more specific questions that apply to you directly. It will also save time because you will already know some of the information that s/he needs to find out.
1st, on number 3, in terms of determining whether or not someone can qualify as a dependent (necessary to take someone else's medical expenses),
Social Security isn't included as part of the income test. So, if the persons only income is SS, it doesn't matter if their benefit is more than the maximum allowed to qualify as a dependent. However, the next test is support. And here, SS benefit IS counted as to whether or not you provide 50% support to the individual. This is just another reflection of how specific determining dependency is.
As to number 4 in regards to the question by the original poster, I jumped to the conclusion that one of the caregivers of MIL, either the taxpayer or the spouse is 65 or over. If so, what I wrote was accurate. Starting in tax year 2013, the medical exclusion, which has been 7.5% for eons, has been increased to 10%. A special temporary exemption continuing the 7.5% was put in place through the 2016 tax year, if either the taxpayer or spouse is 65 or over.
Thanks, akd, you don't want any misunderstandings.