17.13 Home Improvements as Medical Expenses

A disease or ailment may require the construction or installation of special equipment or facilities in a home: A heart patient may need an elevator to carry him or her upstairs; a polio patient, a pool; and an asthmatic patient, an air cleaning system.

Subject to the AGI floor(17.1), you may deduct the full cost of equipment installed for a medical reason if it does not increase the value of your property, as, for example, the cost of a detachable window air conditioner. Where equipment or home improvement increases the value of your property, only the cost in excess of the increase in value to the home may be treated as a medical expense. This increased-value test does not apply to certain structural changes to a residence made to accommodate a disabling condition, as discussed below. If the equipment does not increase the value of the property, its entire cost is deductible, even though it is permanently fixed to the property.

The expense of maintaining and operating equipment installed for medical reasons may be claimed as a medical expense. This is true even if some or all of the cost does not qualify for a deduction because it must be reduced by the increase in value to your home. For example, if a heart patient installs an elevator in his home on the advice of his doctor, but an appraisal shows that the elevator increased the value of the home by more than the cost of the elevator, the cost would not be a medical expense. However, the cost of electricity to operate it and any maintenance costs are medical expenses as long as the medical reason for the elevator continues.

Certain structural improvements to accommodate disability fully taken into account.

The increased-value test does not apply to structural changes made to a residence to accommodate your disabled condition, or the condition of your spouse or dependents who live with you. Eligible expenses include adding ramps, modifying doorways and stairways, installing railings and support bars, and altering cabinets, outlets, fixtures, and warning systems. Such improvements are treated for medical deduction purposes as not increasing the value of the home. Lifts, but not elevators, also are in this category. The full cost of such improvements is added to other deductible expenses and the total is deductible to the extent that it exceeds the AGI floor.

Prepaid home construction costs.

Zipkin suffered from multiple chemical sensitivity syndrome and built a house with special filtering and ventilation systems. The cost of the special features exceeded the fair market value of the home by $645,000. She claimed a deduction for the full amount when the house was completed. The IRS disallowed the deduction for the construction costs incurred in the years before the home was completed. Zipkin successfully argued before a federal district court that the construction costs should be treated as prepaid medical expenses that are deductible in the year medical benefits are received. The federal court allowed Zipkin to deduct the full amount in the year the home became habitable.

Deducting the cost of a swimming pool.

If swimming is prescribed as physical therapy, the cost of constructing a home swimming pool may be partly deductible as a medical expense but only to the extent the cost exceeds the increase in value to the house. However, the IRS is likely to question any deduction because of the possibility that the pool may be used for recreation. If you can show that the pool is specially equipped to alleviate your condition and is not generally suited for recreation, the IRS will allow the deduction unless the expense is considered to be “lavish or extravagant.” For example, the IRS allowed a deduction for a pool constructed by an osteoarthritis patient. His physician prescribed swimming several times a day as treatment. He built an indoor lap pool with specially designed stairs and a hydrotherapy device. Given these features, the IRS concluded that the pool was specially designed to provide medical treatment.

In one case the IRS tried to limit the cost of a luxury indoor pool built for therapeutic reasons to the least expensive construction. The Tax Court rejected the IRS position, holding that a medical expense is not to be limited to the cheapest form of treatment; on appeal, the IRS position was adopted.

If, instead of building a pool, you buy a home with a pool, can you deduct the part of the purchase price allocated to the pool? The Tax Court said no. The purchase price of the house includes the fair market value of the pool. Therefore, there is no extra cost above the increase in the home’s value that would support a medical expense deduction.

The operating costs of an indoor pool were allowed by the Tax Court as a deduction to an emphysema sufferer.

A deduction is barred where the primary purpose of the improvement is for personal convenience rather than medical necessity.