The Medical Expense Deduction in 2018

Tax reform has lowered the threshold.

If you itemize, you should note the reduced medical deduction threshold for 2018. This year, you can deduct qualified medical expenses exceeding 7.5% of your adjusted gross income (AGI). Next year, the threshold for the medical expense deduction returns to 10% of AGI. (The Tax Cuts & Jobs Act of 2018 also allowed the 7.5% threshold to apply retroactively to the 2017 tax year.)[1]

If you are considering surgery or dental work that could mean sizable out-of-pocket expenses for you, it may be better from a tax standpoint to schedule these procedures for 2018 instead of 2019.

What kinds of unreimbursed expenses qualify for the deduction? The list is long. For a start, the IRS says the following expenses may qualify as tax deductible: out-of-pocket fees to medical and dental professionals, psychiatrists, psychologists, and certain nontraditional medical practitioners; money spent to participate in a weight-loss program in response to a doctor-diagnosed condition or disease; payments for prescription drugs and insulin; payments for smoking cessation programs and prescription drugs to facilitate nicotine withdrawal; money spent on inpatient treatment or acupuncture at a rehab facility; and money spent on inpatient hospital care or residential nursing home care.[1,2]

That last item deserves further explanation. If a taxpayer is in a nursing home to receive medical care, the IRS says that the cost of that care and any lodging and meal costs borne by the taxpayer are deductible. Should the taxpayer reside in a nursing home primarily for other reasons, the IRS limits the deduction to the medical care provided.[2]

Other potential medical expense deductions are worth noting. You can deduct payments made for health care aids such as wheelchairs, false teeth, service animals and guide dogs, hearing aids, contact lenses, and reading or prescription eyeglasses. In addition, you can usually deduct insurance premiums that you have paid for insurance policies covering medical care or long-term care (as opposed to premiums paid on these policies by your employer). Lastly, you can often deduct transportation costs you incur related to qualified medical expenses: bus, train, and plane fares; gasoline expenses; parking and toll fees.[2]

What kinds of expenses do not qualify? The cost of basic toiletries and toothpaste cannot be deducted; the same goes for cosmetics. Expenses for cosmetic surgery are usually not deductible, and neither are expenses for wellness programs or vacations. Non-prescription, over-the-counter drugs or medicines are non-deductible. Nicotine patches and gum may not be deducted, unless they have been prescribed for you. Burial and funeral expenses are also ineligible for the medical expense deduction.[2]

Talk to a tax professional about the possibilities here. You may find it advantageous to itemize in 2018 using Schedule A so that you can claim medical expense deductions and take advantage of what could be the last year for the 7.5% threshold. Or you might find that taking the newly enlarged standard deduction makes more financial sense. If you think your household will have significant medical expenses this year, it might be wise to compare the options.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations
1 - tinyurl.com/yabhctua [2/15/18]
2 - irs.gov/taxtopics/tc502 [1/31/18]

Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.