Tax planning for aging clients: medical expense deduction for home improvements.

• Author: Shenkman, Martin M.

Elderly and disabled clients may qualify for valuable home improvement medical expense deductions when costs are incurred to make a residence more accessible, safer, or capable of meeting specific health issues.

Tax practitioners are well aware that the population is aging. The U.S. Census Bureau estimates those age 85 and older could number 18 million by 2050. Aging often brings increased health and mobility challenges.The U.S. Department of Health and Human Services Administration for Community Living projects the number of moderately or severely disabled elderly persons will grow to 22.6 million by 2040. Approximately 79% of people who require long-term care live in their homes, according to the Family Caregiver Alliance. This will necessitate additional home modifications to make homes more accessible, safer, or capable of addressing specific health issues. Many clients making these improvements, with guidance and planning, may qualify for valuable home improvement medical expense deductions. These deductions can be substantial and, thus, of interest to even wealthy clients.

Planning for this deduction can create an opportunity for CPA firms to offer aging clients a range of planning and other services. For example, CPAs as trusted advisers can help aging clients safeguard and manage their financial assets by monitoring their bank, brokerage, and other statements. In addition, at some age or level of incapacity, these clients will need someone to provide bill-paying and related services. Few, if any, people are more qualified to provide these services than CPAs.

The Home Improvement Medical Expense Deduction

Sec. 213(a) allows taxpayers to deduct expenses paid during the tax year for medical care of the taxpayer, the taxpayer's spouse, or a dependent (as defined in Sec. 152), as long as the expenses are not compensated for by insurance or otherwise and to the extent that the expenses exceed 10% of the taxpayer's adjusted gross income. "Medical care" includes amounts paid "for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body" (Sec. 213(d)(1)). Under Regs. Sec. 1.213-l(e)(l)(ii), deductions for expenditures for medical care allowable under Sec. 213 are "confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness." An expenditure that merely benefits the individual's general health is...