A has AGI of $575,000 in 2016. A is concerned about his appearance and his healt
ID: 2562519 • Letter: A
Question
A has AGI of $575,000 in 2016. A is concerned about his appearance and his health. His doctor advises him that exercising more would be good for his general health. A joins a gym and pays $5,000 for the membership. A also has plastic surgery on his stomach (tummy tuck) for a cost of $15,000. Of course, due to the extra exercise and the stress that the surgery had on A, A has a heart attack in July of 2017. His doctor tells him that swimming would be a great cardio vascular exercise that shouldn’t be too stressful, and that since he lives in an extremely large house with many stairwells he should attach those chair like devices that he can sit in to go up and down the stairs. Based on this medical advice, he has a swimming pool installed in his backyard and he puts those chair like devices on all of the stairwells in his house. The cost of these improvements is $150,000. The value of his house went up by $50,000 due to the pool and chairs. His costs related to his heart attack were mostly paid by his medical insurance company. His out of pocket medical expenses were $4,000. How much may A deduct on his 2017 tax return for medical expenses?
Explanation / Answer
The IRS allows an individual to deduct qualified medical expenses that exceed 10% of the adjusted gross income of the person. Therefore, A can make deduction of only those medical expenses which exceed 10% of $575,000.
10% of AGI = $575,000 x 10% = $57,500
If the qualified mediical expenses of Mr.A exceed $57,500 then he can take deduction of expenses over and above such amount.
For Calculating qualified medical expenses, let us start looking whether each expense incurred fall under sucj category or not:
1. Gym membership : Membership paid for joining a gym does not qualify as a medical expense as per kthe IRS even if the same is advised by the doctor. Therefore, gym mebership of $5,000 is not a qualified medical expense and will not considered for deduction in tax return.
2. Plastic surgery on stomach: As per IRS any cosmetic surgery doesn't qualify for being medical expense unless it was necessary to improve a deformity related to a congenital abnormality, an injury from an accident or trauma, or a disfiguring disease.In the given part, Mr. A has undergone a plastic surgery for tummy tuck. Since the same was not related to any deformity related to a congenital abnormality. Therefore, cost of Plastic surgery amounting to $15,000 will not qualify for deduction as medical expense.
3. Cost of swimming pool and stair like devices: Ordinarily, one cannot deduct the cost of permanent improvements to home as medical expenses. however, the same is allowed as exception if these costs are incurred with the main purpose of medical care for self, spouse or dependents. Moreover, such cost of the improvement must be reduced by the amount of the increase in value of the property. Ideally, cost of installing swimming is not considered as medical expense for deduction but the same is considered if it is prescribed by a doctor. In the given question, Mr. A has a heart attack in 2017 due to which his doctor prescribed him that swimming would be a great cardio vascular exercise. Therefore, whole amount of $150,000 will be considered as medical expense.
Cost of improvement to be considered as medical expense = $150,000 - $50,000 = $100,000.
4. Out of pocket expenses on heart attack: All the expenses which are reimbursed or directly paid by the medical insurance company are not qualified for medical expenses. But if some out of the pocket expenses are incurred by the individual then the same are considered to be qualified medical expenses. Therefore, $4,000 are qualified medical expenses.
TOTAL Quaalified Medical expenses = $100,000 + $4,000 = $104,000.
Amount of medical expense allowed to be deducted in tax return = Qualified Medical expense - 10% of AGI.
= $104,000 - $57,500
= $46,500.
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