Disability Deductions: Providing Greater Access to Tax Savings
Thompson, Carl S., The National Public Accountant
The Internal Revenue Code provides numerous benefits for persons with handicaps or disabilities. These benefits include medical expense deductions for qualifying capital expenditures, miscellaneous deductions for impairment-related work expenses, a tax credit for the permanently and totally disabled and a tax credit for disabled dependent care expenses.
Persons with a handicap or disability may include as medical expense deductions all or part of the amounts paid for special equipment installed in the home or for home improvements, if the main reason for the improvements is medical care. Medical expenses are deductible on Schedule A of IRS Form 1040 to the extent that they exceed 7.5% of the taxpayer's adjusted gross income (AGI).
These amounts are limited, however, to the extent that such expenditures exceed the amount of the increase in the value of the property affected. If the value of the property has not increased, then the entire cost of the capital expenditure is deductible as a medical expense.(1) In one case, a medical expense deduction for the construction of a new home with special features (such as ramps, special entrances, air conditioning, an intercom system and a built-in stereo system) for an individual with multiple sclerosis was limited to $900. Proof of the extent to which the costs of the special features failed to increase the market value of the house was determined to be unsubstantiated. However, a $900 deduction was allowed for a portion of the costs that were determined to be allowable medical expenses.(2)
In W.E. Beyers, taxpayers were not allowed to deduct expenses incurred in renovating a home for use by a dependent relative because they failed to prove that the value of the house did not increase in an amount equal to the cost of the capital improvements.(3) In another case, S. Keen, the expenses of installing a health spa upon a doctor's advice were not deductible to the extent that the spa increased the value of the taxpayer's residence.(4)
Examples of expenses made for the purpose of accommodating a personal residence for a handicapped person are:
* Construction of entrance or exit ramps to the residence;
* Widening doorways at entrances or exits to the residence;
* Widening or otherwise modifying hallways and interior doorways;
* Installing railing, support bars or other modifications to bathrooms;
* Lowering or making other modifications to kitchen cabinets and equipment;
* Altering the location or otherwise modifying electrical outlets and fixtures;
* Installing porch lifts and other forms of lifts (an elevator, however, may also add to the fair market value of the residence and any deduction would have to be decreased to that extent);
* Modifying fire alarms, smoke detectors and other warning systems;
* Modifying stairs;
* Adding handrails or grab bars whether or not in bathrooms;
* Modifying hardware on doors;
* Modifying areas in front entrance and exit doorways; and
* Grading of ground to provide access to the residence.(5)
This list represents just a sample of capital expenditures and does not preclude the deduction of similar expenditures incurred in accommodating a personal residence to the handicapped condition of a taxpayer, the taxpayer's spouse or dependents who reside there. In addition, certain expenditures unrelated to the residence (such as the cost of a wheelchair lift and its installation in a van) may qualify as deductible medical expenses.
Impairment-Related Work Expenses
If a taxpayer has a disability that limits his or her employment, then the taxpayer may deduct expenses that are necessary for the taxpayer to be able to work. Impairment-related work expenses are allowable business expenses for attendant care services at the taxpayer's place of work as are other expenses in connection with the taxpayer's place of employment that are necessary for the taxpayer to be able to work. …