New Rules for Medical Expense Deductions

When seniors and their families evaluate how much they can afford to pay for care, they often look to the income-tax deduction for medical expenses as a way to make more funds available.  These expenses can include non-medical home care and the cost of an assisted living or memory care facility, as well as medical equipment; deductibles and co-pays for medical services and prescriptions; dental expenses; and even supplements and naturopathic medicine that may not be covered by traditional health insurance.  In fact, your financial advisor may suggest that the deduction for these expenses can offset at least some of the increased tax burden from increasing your withdrawals from an IRA or 401(k) to pay for long-term care.

While this is correct, there have been some limitations on the amount of these expenses that can  be deducted, and more limitations will phase in after 2016.

First of all, this deduction is only available to taxpayers who itemize their deductions in Schedule A of their tax return. If you do, the medical expenses paid for the taxpayer and his or her spouse and dependents must exceed 10% of the Adjusted Gross Income. (Prior to 2013, these expenses only needed to exceed 7.5% of your adjusted gross income.  This percentage is referred to by the IRS as “the floor”).

However, if you or your spouse was age 65 in 2013,  the 7.5% floor continues to apply to you through 2016.  And if you were under 65 in 2013, but turn 65 in 2014, 2015 or 2016, then the 7.5% floor will apply to you for the year you turned 65, and any subsequent year until 2016.  After 2016, the 10% floor will apply to everyone.

Please consult your tax preparer to see whether this applies to you, and to make sure you are keeping the proper documentation.




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