This may be the last year you claim a medical expense deduction on your personal tax return. It all has to do with several changes in the Tax Cuts and Jobs Act (TCJA).
Background: Among other provisions that are generally effective for 2018 through 2025, the TCJA cuts back or eliminates certain itemized deductions, while increasing the standard deduction. Net result: Fewer taxpayers will be itemizing deductions on their 2018 returns. So the medical deduction may become a moot point for some.
For those who still itemize, however, a temporary tax break is still available. Before the TCJA, the threshold for deducting medial expenses was set at 10% of adjusted gross income (AGI), which made it difficult for many taxpayers to qualify. The TCJA lowered the 10%-of-AGI threshold to 7.5% of AGI—but only for the 2017 and 2018 tax years.
For example, if you show an AGI of $100,000 for 2018 and had $9,900 of unreimbursed medical expenses, you can deduct $2,400 ($9,900 – $7,500). Previously, your deduction would have been zero.
As a result, you should scour your records for expenses that may help you clear the deduction threshold for 2018 or increase an 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 getting back and forth from the treatment (even if similar treatment is available nearby). If you travel by car, you can deduct either your actual automobile expenses or a flat rate of 18 cents per mile in 2018 (increasing to 20 cents a mile in 2019). Although the flat rate method is more convenient, you may come out ahead if you have kept 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 (also 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 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 value of your home. Side benefit: The cost of maintaining and operating the improvement also qualifies for the deduction.
Reminder: Unlike most other individual TCJA changes that last through 2025, the medical deduction threshold reverts to 10% of AGI for the 2019 tax year. If you have any questions about this tax deduction, please reach out to your JMF tax professional.