Last year, Mr. Smith was involved in an automobile accident, severely injuring his legs. As a part of a long-term rehabilitation process, his physician prescribes a daily routine of swimming. Because there is not readily available public facility nearby, Mr. Smith purchases a house with a pool for $175,000. Replacing the pool would cost $20,000. The existing pool increases the fair market value of the house by $8,000. Mr. Smith spends $500 maintaining the pool and $1,800 in other medical expenses. Mr. Smith wants to know the total amount of medical expenses that he may claim in the current year. His AGI is $60,000.
Relevant Tax Law:
IRC Sec. 213(a) states that “there shall ...view middle of the document...
For purposes of section 213 and this paragraph, a capital expenditure made by the taxpayer may qualify as a medical expense, if it has as its primary purpose the medical care of the taxpayer, his spouse, or his dependent. Thus, a capital expenditure which is related only to the sick person and is not related to permanent improvement or betterment of property, if it otherwise qualifies as an expenditure for medical care, shall be deductible; for example, an expenditure for eye glasses, a seeing eye dog, artificial teeth and limbs, a wheel chair, crutches, an inclinator or an air conditioner which is detachable from the property and purchased only for the use of a sick person, etc. Moreover, a capital expenditure for permanent improvement of property may qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property, if the particular expenditure is related directly to medical care. Such a situation could arise, for example, where a taxpayer is advised by a physician to install an elevator in his residence so that the taxpayer's wife who is afflicted with heart disease will not be required to climb stairs. If the cost of installing the elevator is $1,000 and the increase in the value of the residence is determined to be only $700, the difference of $300, which is the amount in excess of the value enhancement, is deductible as a medical expense. If, however, by reason of this expenditure, it is determined that the value of the residence has not been increased, the entire cost of installing the elevator would qualify as a medical expense. Expenditures made for the operation or maintenance of a capital asset are likewise deductible medical expenses if they have as their primary purpose the medical care of the taxpayer, his spouse, or his dependent. (http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A%2C_Sec._1.213-1) Any costs of operating or maintain the assets are subject to the 7.5% of AGI floor. (textbook)
According to IRS Publication 502, “you can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property. The difference is a medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense.
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.” (http://www.irs.gov/publications/p502/ar02.html)
“Rev. Rul. 83-33, 1983-1 C.B. 70;
Are expenditures for the costs of constructing, operating, and maintaining...