Impairment-Related Capital Expenses
Amounts paid for special equipment installed in the taxpayer’s home, or for improvements made to the home, may be included in medical expenses, if their main purpose is medical care for the taxpayer, the spouse, or a dependent. Sometimes also referred to as senior-proofing the home, the cost of permanent improvements that increase the value of the property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of the property. The difference is a medical expense. If the value of the property is not increased by the improvement, the entire cost is included as a medical expense.
Example - A doctor recommends that a taxpayer with severe arthritis have daily hydrotherapy. The taxpayer has a hot tub installed at a cost of $21,000. A certified home appraiser determined the hot tub addition increased the home’s value by $15,000. The taxpayer’s medical deduction for installing the hot tub will only be $6,000. The other $15,000 of expenses will increase the home’s basis, meaning that it will add to the home’s cost and will offset the sales price when the home is sold.
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While the tax rules don’t require a prescription from a doctor for most medically related home modifications, the taxpayer, if questioned by the IRS, needs to be able to demonstrate how the expenditure is related to his or her medical care or that of a spouse or dependent. And having a letter from the individual’s doctor that explains the type of modifications that would be medically beneficial would help to prove a medical need.
Not all improvements result in an increased home value. In fact, some, such as lowering cabinets for an occupant confined to a wheelchair, could actually decrease the home’s resale value.
On the flip side, there are circumstances where certain home modifications may actually increase the home’s value for buyers with disabilities.
Certain home modifications made to accommodate a home to a taxpayer’s disabled condition, or that of the spouse or dependents who live with the taxpayer, and the costs of which the IRS allows in full as medical expenses because they usually don’t increase a home’s value, include:
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Constructing entrance or exit ramps for the home
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Widening doorways at entrances or exits to the home
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Widening or otherwise modifying hallways and interior doorways
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Installing railings, support bars, or other modifications
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Lowering or modifying kitchen cabinets and equipment
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Moving or modifying electrical outlets and fixtures
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Installing porch lifts and other forms of lifts but generally not elevators
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Modifying fire alarms, smoke detectors, and other warning systems
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Modifying stairways
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Adding handrails or grab bars anywhere (whether or not in bathrooms)
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Modifying hardware on doors
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Modifying areas in front of entrance and exit doorways, and
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Grading the ground to provide access to the residence.
Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses.