The tax threshold for deducting medical expenses is written in stone…finally. After several years in which the medical deduction threshold jumped back and forth between 7.5% of adjusted gross income (AGI) and 10% of AGI, Congress settled the issue once and for all in the Consolidated Appropriations Act (CAA). Effective as of 2021, the CAA permanently sets the limit at 7.5% of AGI. (Of course, there are no absolute guarantees that Congress will not chip away at this tax break again in the future.)
For example, if you have an AGI of $100,000 for 2021 with $9,000 in unreimbursed medical expenses, you can deduct the excess above 7.5% of AGI, or $1,500, on your personal return. If the threshold were 10% of AGI, your deduction would have been zero. Note that the medical expense deduction is only available to itemizers.
Keeping that in mind, scour your records to find qualified medical expenses that may help you qualify for a deduction for 2021 or increase an existing deduction. Here are several examples that may be overlooked.
Transportation costs: The deductible amount is not limited to the actual cost of the physician or hospital services. You may also write off 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 use a standard mileage rate of 16 cents per mile on your 2021 return (increasing to 18 cents per mile for 2022). While the standard mileage rate method is more convenient, you may come out ahead by keeping track of 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.” Plus, 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 deduct the expense.
Home improvements: You can deduct the cost of a home improvement if it 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.
Finally, note that you may benefit from deductible medical expenses on your state income tax return, when applicable. For instance, in New Jersey a resident may deduct the excess medical expenses above 2% of AGI.
Bottom line: Review your situation with your JMF professional tax advisor.
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