As the population ages and you start to face things like retirement, mobility issues or an older loved one moving in with you, the time comes to consider what modifications must be made to your home. Whether you are considering adding grab bars to your shower or installing a ramp leading to the front door, here is what you need to know about the potential tax deductions you can receive.
Understanding What Is Deductible
In general, you cannot deduct home improvement costs from your taxes, unless they are used to offset the gain you received on your home upon selling it. However, if the primary purpose of your household modification is for medical reasons you could utilize a medical expense deduction. According to tax law, eligible medical expenses are those that are paid to diagnose, cure, treat, mitigate or prevent disease, along with costs for treatments. If you or a loved one living in your home is making the modification directly due to medical need, it could be deductible.
What’s the Catch?
You can only deduct the portion of the cost of modifications that exceed the resultant increase in the value of your home and you can usually deduct the cost of modifications that decrease the value of your home. One example of this would be installing a tub for daily hydrotherapy. If the doctor suggests this and you invest $21,000 into the installation of one, you get a $21,000 deduction, right? Not so fast! If an appraiser says that the hot tub increased your home value by $18,000, you will only be able to deduct the $3,000 difference.
How Can You Get Your Deduction?
You do not need a prescription or doctor’s note to receive the deduction, but you should be able to show how the expense is directly related to medical needs if the IRS does question it. What improvements typically do not increase home value and thereby can often be deducted in full?
- Building entrance or exit ramps
- Widening doorways
- Widening or modifying interior doors or hallways
- Adding support bars or railings to the bathroom or hallways
- Lowering kitchen cabinets or countertops
- Moving or adjusting electrical outlets
- Installing lifts (not elevators)
- Changing door hardware
- Modifying stairways
- Grading the ground or landscape to increase access
If you are unsure whether or not your modifications are tax deductible, we are always here to help.
Tax Planning with Miles Tax Advisory
If you are uncertain how your home modifications can benefit your taxes or you are looking to get started on your 2020 tax planning, we are always here to assist you!