Future residential costs and the medical expense deduction.

• Author: Segal, Mark A.

For many individuals of advancing age or with infirmities, questions surface concerning their ability to care for themselves. It is not uncommon for these concerns to result in placement in what is perceived to be a protective environment, e.g., a nursing home, convalescent home or retirement community. Moving to such a facility entails substantial expense. This financial burden can be mitigated should the cost qualify as a deductible medical expense. The major obstacle to qualifying for this treatment involves overcoming the claim that the cost constitutes a nondeductible personal, living or family expense under Sec. 262.

In November 1993, the IRS issued two pronouncements pertinent to the treatment of these costs. In Rev. Rul. 93-72, the Service indicated that it will not allow the current deduction of payments for future medical care extending substantially beyond the close of the tax year if the care is not of the type purchased in connection with obtaining lifetime care (as described in Rev. Ruls. 75-302, 75-303 and 76-481). In Rev. Proc. 93-43, the IRS indicated it would not issue advance rulings in response to requests made after Oct. 14, 1993 as to the deductibility of payments made for medical insurance (or medical care) that extends substantially beyond the end of the tax year.

While these pronouncements reveal the Service's narrow perspective, they also illustrate the circumstances under which these costs may be deducted. The following factors are relevant to determining if the cost for future residence in nonhospital facilities constitutes medical expenses for tax purposes.

1. The presence of valid health concerns or medical problems justifying the need for medical supervision, care or ready intervention. The condition should...