Don't Overlook Medical Tax Deductions

Medical deductions can soothe major health costs

Sharon Waters,

AARP

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En español

Published February 05, 2024

an illustration of a balloon with a 100 dollar bill design on it carrying a prescription on a blue field

Matt Chase

In this story

Long-term care • Life-care fees • Home improvements • Wheelchairs and scooters • Oxygen • Masks and other items

Being ill is never easy. But one silver lining of a bad situation is that medical costs may turn into a tax break.

To deduct medical expenses on your tax return, you need to itemize deductions rather than claim the standard deduction. But many Americans don’t itemize, thanks to the annual growth of the standard deduction. You need to have more in itemized deductions than the standard deduction to make itemizing worthwhile.

“As the standard deduction has continued to rise in recent years, the number of taxpayers claiming the medical expense deduction has continued to fall, with fewer than half as many claiming it in 2021, compared to 2017,” said Eric Smith, spokesman for the IRS. He noted the change went from nearly 10.1 million returns in 2017 to just over 3.7 million returns in 2021.

If itemizing makes sense, a second criteria must be met: Your total unreimbursed medical expenses for the year need to exceed 7.5% of your adjusted gross income. Only the amount above that 7.5% threshold can be deducted. “Normally, you can only claim the medical expense deduction in a year you paid truly major medical bills,” Smith said.

Recordkeeping is crucial — keep meticulous documentation of your medical expenses to support your deduction. Also, only unreimbursed expenses can be deducted. If insurance covered the cost, you can’t claim it on your tax return.

There were no new medical deductions introduced for tax year 2023, but there are many items that qualify. IRS Publication 502 includes an alphabetical list of common expenses and their treatment under federal tax law. Even if you don’t meet the threshold to deduct medical expenses on your tax return, this list can be useful to know what expenses qualify for flexible spending accounts or health savings accounts.

Here are some big-ticket items that can be deducted.

Long-term care

You can deduct the cost of medical care in a nursing home or similar institution for yourself, your spouse or your dependent. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. The resident must be chronically ill. Being at the facility for personal reasons does not qualify.

Estimate Your 2023 Taxes

AARP’s tax calculator can help you predict what you’re likely to pay for the 2023 tax year.

Certain amounts of premiums paid for qualified long-term care insurance contracts can also be deducted. The long-term care insurance contract must meet certain IRS requirements, and the amount of premium you can include is limited based on your age. Research thoroughly or get professional advice before taking this deduction.

If you have a long-term care insurance policy that makes payments toward your nursing home care, you need to subtract the insurance payments before taking a deduction.

Life-care fees

Sometimes called a “founder’s fee,” a life-care fee is paid to a retirement home for the facility’s promise to provide lifetime care that includes medical care. The fee may be paid monthly or as an upfront lump-sum amount. Only the medical portion of a life-care fee can be deducted as a medical expense. The IRS says taxpayers can use a statement from the retirement home to prove the amount properly allocable to medical care.

Home improvements

Improvements or special equipment installed in a home can qualify as medical expenses if their main purpose is medical care. Examples include entrance ramps into the home, handrails or grab bars, lift chairs to get up stairs, and modifications such as widening doorways or lowering kitchen cabinets to make them accessible.

If the cost of a permanent improvement increases the value of the home, the deduction must be reduced by that increase. For example, if $30,000 of improvements were made and they increased the value of the home by $20,000, then the deductible medical expense would be $10,000. If there is no increase in property value, the full cost qualifies as a medical expense.

Keep receipts to document the money spent on the improvements. Have an appraiser determine whether the improvement increased the property value, and by how much, said Tom O’Saben, director of tax content and government relations, National Association of Tax Professionals. He also advised keeping documentation from a doctor that the home improvements were medically necessary.

“It could be a suggestion from a medical professional to say, you need to have this work done or move to another location that has the services available,” O’Saben said. “In order to maintain your independence, you're going to have to have this work done. And that would help to support that deduction you're taking on a tax return.”

It’s not enough for family members to believe the improvements are needed.

“It’s different from a decision that Mom is living by herself and the children decide we need to give mom better accessibility. We need a professional to determine that. I mean, we'd all like to have Mom have as much convenience that she can, but that doesn't necessarily make it rise to the level of a medical expense,” said O’Saben, an enrolled agent in the St. Louis area.

Costs must be reasonable and related to your medical condition. Money paid for upkeep of the improvements can qualify as a medical expense as long as the reason for them is medical care.

Wheelchairs and scooters

The cost of a wheelchair or scooter used for the relief of a sickness or disability is a medical expense. The cost of operating and maintaining the wheelchair can also be deducted.

Oxygen

Money spent on oxygen and related equipment can be deducted if it is used to relieve breathing problems caused by a medical condition.

Masks…and everything else

If you reach the 7.5 percent of adjusted gross income threshold, likely because of big-ticket items, make sure you are calculating all medical expenses for the year. Those unreimbursed costs can range from items like eyeglasses and hearing aids to CPAP machines and crutches, notes Kamila Elliott, a certified financial planner in Atlanta. Don’t forget about mileage — you can deduct miles for traveling to and from medical appointments at a rate of 22 cents per mile in 2023, Elliott said.

Also, the purchase of personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of the coronavirus, are deductible medical expenses.

Finally, make sure you are managing medical expenses as best you can, O’Saben advised. Explore whether you have discounts through a membership or association.

“It's possible you've got benefits you're not fully aware of, through various associations that you might belong to. Uncover those stones,” O’Saben said. “Because I'm not as interested in a medical expense deduction as I am in a reimbursement. A reimbursement would be a lot better than a deduction. It’s dollar for dollar back in your pocket.”

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