Capital expenditures, such as home improvements, are typically not tax deductible on your Federal tax return. However, a home improvement may qualify as a income tax deductible medical expense if the main purpose of the expense is to provide medical benefits.

According to IRS Publication 502, medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These include the costs of equipment, supplies, and diagnostic devices needed for these purposes. However, medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health.

The tax deduction is limited to the excess of the cost of the improvements over the increase in fair market value (FMV) of the home. Improvements made by renters are fully deductible since they do not own the property. For newly constructed homes, qualifying medical expenses are deductible in the year you move in, even if you paid part of the cost in previous years.

Medical Deductions have been allowed for:
  • Central air when a family member suffered from respiratory ailments.
  • New siding when the homeowners were allergic to the old siding.
  • Swimming pool for therapeutic purposes.

Certain structural changes required by the handicapped individual that do not increase the value of the house are fully deductible.

Examples of fully deductible expenses are:
  • Entrance/exit ramps.
  • Wider doorways or halls.
  • Railings and support bars.
  • Modifications to bathroom or kitchen hardware to accommodate the physical handicap.
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Topic: Homes