Chapter 10 - Chapter 10: Deductions and LossesCertain...

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Chapter 10: Deductions and Losses—Certain Itemized Deductions Personal expenses are generally disallowed as deductions However, Congress has identified certain personal expenditures that are allowed as itemized deductions MEDICAL EXPENSES Taxpayers allowed deduction for medical expenses (net of any reimbursement) for care of the taxpayer, spouse, and dependents. This deduction is allowed only to the extent expenses exceed 7.5% of AGI Medical Care: expenditures for the diagnosis, cure, mitigation, treatment, or prevention of disease o Amount paid for unnecessary cosmetic surgery are not deductible o If placed in nursing home for personal reasons , expenses are only deductible in relation with medical attention recieved Deductible and Non-Deductible Medical Expenses Deductible Non-Deductible Medical (including dental, mental, and hospital care) Prescription drugs Special equipment (wheelchairs, crutches, glasses, hearing aids) Transportation for medical care Medical and hospital insurance premiums Long-term care insurance premiums Cost of alcohol and drug rehab Certain costs to stop smoking Weight reduction programs for obesity Tuition expenses of dependent at a special school Funeral, burial, or cremation expenses Nonprescription drugs (except insulin) Bottled water Toiletries, cosmetics Diaper service or maternity clothes Programs for the general improvement of health (weight reduction, health spas, social activities) Unnecessary cosmetic surgery Capital Expenditures for Medical Purposes: must be medical in nature if they are incurred as a medical necessity upon the advice of a physician, the facility is used primarily by the patient alone, and the expense is reasonable. (Examples: air conditioners, swimming pools if no local pool is available, elevators, handicap vans) Capital expenditures are usually adjustments to the basis and are not deductible However, capital expenditure made for permanent improvement can classify as a medical expense Capital expenditures for medical purposes are deductible to the extent that the cost exceeds the increase in value of the related property. The cost of capital expenditures that enable a handicapped individual to live independently and productively are deemed to increase the value of the home by zero Capital expenditures for medical purposes are subject to the 7.5% AGI limitation! Medical Expenses Incurred for Spouse and Dependents Deductible if the person was a dependent at the time the expenses were paid or incurred Gross income test and joint return test need not be met for a dependent to qualify the expenditures for the medical deduction A non-custodial parent (divorce situation) may claim any of the child’s medical expenses he or she actually pays even though the custodial parent claims the children as dependents Transportation, Meal, and Lodging Expenses for Medical Treatment Deductible as medical expenses (subject to 7.5% AGI floor) Deduction also allowed for transportation of parent/nurse who must accompany child/patient receiving
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Chapter 10 - Chapter 10: Deductions and LossesCertain...

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