Home improvements may be tax-deductible as medical expenses.

Home improvements may be tax-deductible as medical expenses.

Home improvements may be tax-deductible as medical expenses.

If you make a home improvement that is regarded medically necessary, you may be eligible for a tax break in some limited circumstances.

Normally, the cost of major home improvements like a roof replacement or a deck installation won’t qualify you for any tax benefits. These home improvements are entirely personal costs even though they typically raise the value of your house. Except if…

If a home improvement is considered medically necessary, you may be eligible for a tax break in certain circumstances. If you are eligible and itemize deductions, a portion of the cost may be deducted as a medical expense. However, there is a significant obstacle to overcome.

Background: From 10% of AGI, you are currently only able to deduct medical expenses that exceed 7.5% of AGI. With the passage of recent legislation, the lower threshold will become a permanent part of the tax code starting in 2021 after swinging back and forth between 10% and 7.5% of AGI for several years.

The majority of taxpayers still find this deduction threshold to be intimidating. Your deduction is only $1,000, for instance, if your AGI is $100,000 per year and you have $8,500 in qualifying medical expenses. You cannot claim a deduction if your qualified medical expenses total $7,000 or more.

What expenses are eligible for the deduction? The expense must be incurred primarily to prevent or treat a disease, physical defect, or mental condition. An expense that is simply beneficial to your overall health, on the other hand, is not deductible.

The deductible amount is only allowed to cover the costs above the increase in the home’s value that results from a home improvement that is medically necessary.

Let’s use an example where your AGI is $100,000 and you anticipate $5,000 in uninsured medical and dental costs this year. You put in a swimming pool in your backyard that is in-ground to help with your arthritis. You must pay an additional $15,000 for landscaping and fencing around the pool, which brings the total cost to $35,000.

Half of your out-of-pocket expenses, or $25,000, are expected to be recovered by the improvements, according to an independent appraiser’s estimate.

Your total unreimbursed medical expenses cannot exceed 7.5% of your AGI in 2022, so without the home improvements, you are ineligible to deduct any medical expenses. The medical deduction now applies to $25,000 of the pool’s price as well as associated costs.  As a result, you are now eligible for a $22,500 deduction in 2022 ($30,000 – $7,500)

Other frequent home improvements that may qualify as medical expense deductions include elevator construction for an adult with a heart condition, special access modifications for a disabled person, and air conditioning installed to relieve a child’s asthma. The IRS provides a complete list of qualified expenses in Pub. 50 (Medical and Dental Expenses).

Remember to get a written appraisal from an impartial real estate professional detailing the increase in value of your home as a result of the home improvement. Get a written confirmation from your doctor if they suggest home improvements to treat a health issue.

The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.

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