August 9, 2011 3:38 pm

Medical Home Improvements Improve Your Tax Picture, Too

If you or someone in your household has a condition that requires certain capital improvements, you may gain an immediate tax break. Normally, home improvements, other than certain energy upgrades that qualify for a temporary tax credit, are not immediately deductible. Instead, the cost is added to the tax basis of your home, which serves to minimize capital gain on a future sale of the home. But medical-related improvements may be treated as a currently deductible medical expense.

Doctor-prescribed improvements

Those with certain medical conditions may see improvement if changes are made in the home environment. The cost of these improvements are a deductible expense to the extent they do not increase the value of the home. Of course, it’s not enough that the improvement is helpful to a condition, such as adding a home spa so you can remain physically fit. The improvement must be ordered by a physician to address a specific illness or condition.

Example: Say your doctor prescribes swimming to alleviate a back condition and you install an inground pool. The pool costs $15,000 and increases the value of your home by $10,000, so $5,000 (the amount that does not increase value) is a deductible medical expense.

Examples of medical improvements:

  • Central air conditioning to maintain constant temperature for a homeowner’s child with cystic fibrosis
  • Elevator for a homeowner with a heart condition
  • Replacing clapboard siding to alleviate the homeowner’s daughter’s allergies
  • Swimming pool for an osteoarthritis patient

Special construction: A chemically sensitive person built a home with special filtering and ventilation systems, which cost $645,000 more than the value added to the home. Despite IRS objections, a court allowed the homeowner to deduct this amount in the year she moved in.

The cost of removing lead paint from house surfaces and covering surfaces with plaster, wallboard, or paneling is also deductible. However, this write-off applies only the costs associated with areas accessible to a homeowner’s child; costs for other areas are not deductible.

Disability-related improvements

The cost of certain improvements is fully deductible, without regard to any increase in value. The IRS essentially views these structural changes and improvements as not impacting value (they may even detract from value). Examples:

  • Fire alarm strobe systems for the hearing impaired
  • Installing ramps, support bars, and railings
  • Lowering cabinets for wheelchair access
  • Signaling devices for doors and phones for the hearing impaired
  • Widening doorways or hallways (to accommodate a wheelchair)

Bonus

Once you establish that a home improvement is a deductible medical expense, then any costs to maintain or repair it is also deductible. Thus, the cost of chemicals and cleaning for a doctor-prescribed swimming pool is deductible.

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Factoids
FACT: 

There have been about 4,428 changes to the Tax Code over the past 10 years, which is an average of more than one a day. There have been an estimated 579 changes in 2010.

Source: National Taxpayer Advocate Annual Report 2010

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