The Tax Cuts and Jobs Act (TCJA) repeals or cuts back many deductions on personal returns, but the medical expense deduction survived the chopping block. In fact, the new law temporarily enhances the deduction, retroactive to the 2017 tax year. In other words, you can benefit from this tax-favored treatment on the 2017 return you file in 2018.
Background: The deduction for medical expenses is limited to the unreimbursed expenses above an annual threshold based on adjusted gross income (AGI). The Affordable Care Act (ACA) increased the threshold from 7.5% of AGI to 10% of AGI (except for a temporary reprieve for senior citizens). Now the TCJA restores the lower 7.5%-of-AGI threshold for all taxpayers, but only for the 2017 and 2018 tax years.
For example, if you have an AGI of $100,000 for 2017 and $9,500 of unreimbursed medical expenses, you can deduct $2,000. Previously, your deduction would have been zero.
Thus, scour your records to find expenses that may help you qualify for a deduction in 2017 or increase your existing deduction. Here are some common examples of expenses you might have missed:
- Transportation costs: The deductible amount is not limited to the actual cost of the physician’s or hospital’s services. You may also deduct the cost of traveling to and from the treatment (even if similar treatment is available nearby). If you travel by car, you can either deduct your actual automobile expenses or a flat rate of 17 cents per mile in 2017 (increased to 18 cents per mile in 2018). While the flat-rate method is more convenient, you may come out ahead by keeping track of your actual expenses.
- Lodging costs: You can also deduct the cost of staying at a hotel or motel while you are receiving medical care away from home. However, the accommodations cannot be “lavish or extravagant.” The deductible amount for lodging is limited to $50 per day. If a companion’s presence on the trip is required, the cost of the companion’s lodging is also deductible (subject to the $50-per-day limit).
- Nursing care: If a family member needs nursing services in the home, the cost of such services is a deductible medical expense. The medical care does not have to be provided by a registered or trained nurse. In other words, you can pay someone else (e.g., another family member) to provide the care, and you can deduct the expense.
- Capital improvements: You can deduct the cost of a home improvement if the improvement is made for a medical reason. For instance, the cost of installing central air conditioning to alleviate a child’s asthma is deductible. The amount eligible for the deduction is the cost above the increase in the value of your home. Side benefit: The cost of maintaining and operating the improvement also qualifies for the deduction.
Of course, medical expense deductions are available only if you itemize instead of claiming the standard deduction (many fewer people will be itemizing their deductions!). For many taxpayers, this may be the last year these expenses are deductible, in light of the TCJA changes.