Tax Time… What you need to know.

Tax Deductions for Home Modifications in 2010

If you have spent money during the last year on home modifications or installing special equipment in your home to accommodate a medical condition or disability, you will be pleased to know that you may be able to recoup some, if not all, of the costs.  The Federal Government offers tax incentives for individuals making accessibility modifications to their home.  It is also suggested you check with your local state to see if they offer any incentives.  For instance in Minnesota, individuals who purchased and installed a stair lift, ramp or elevator at the principal residence of a person with a disability, can apply for a refund of the sales tax paid if the item purchased is authorized by a physician.

FEDERAL INCOME TAX

Medical and Dental Expenses

Costs incurred to implement accessibility modifications in your home are an eligible medical deduction on your Federal Income Tax under “Medical and Dental Expenses”. You can deduct only the amount of eligible medical and dental expenses that is more than 7.5% of your adjusted gross income.

As part of your medical expenses, you can include amounts you paid for special equipment installed in a home, or for improvements, if their main purpose was medical care for you, your spouse, or a dependent.

The cost of permanent improvements that increase the value of your property (such as an elevator) may be partly included as a medical expense.  The cost of the improvement is reduced by the increase in the value of your property…the difference is a medical expense.

If the value of your property is not increased by the improvement, the entire cost is included as a medical expense.  Certain improvements made to your home for accessibility and to accommodate a disability do not usually increase the value of the home and the entire cost can be included as a medical expense. These improvements include, but are not limited to, the following items:

  • Constructing entrance or exit ramps for your home.
  • Widening doorways at entrances or exits to your home.
  • Widening or otherwise modifying hallways and interior doorways.
  • Installing railings, grab bars, or other modifications to bathrooms.
  • Purchasing and installing ceiling mounted lifting devices.
  • Lowering or modifying kitchen cabinets and equipment.
  • Moving or modifying electrical outlets and fixtures.
  • Installing stair glides (also known as chair lifts) and platform lifts.
  • Installing elevators (Note: elevators generally add value to the house…see the Capital Expense Worksheet in Publication 502 to determine what portion of the cost is deductible).
  • Modifying fire alarms, smoke detectors, and other warning systems.
  • Modifying stairways.
  • Adding handrails or grab bars anywhere (whether or not in bathrooms).
  • Modifying hardware on doors.
  • Modifying areas in front of entrance and exit doorways.
  • Grading the ground to provide access to the residence.

Only reasonable costs to make a home accessible are considered medical expenses.   Additional costs for personal motives, such as for architectural or aesthetic reasons, are not eligible medical expenses.

Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses, as long as the main reason for them is medical care.  This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense.

Improvements to property rented by a person with a disability are also an eligible medical expense.   IRS Publication 502 indicates that “amounts paid by a renter to buy and install special plumbing fixtures in a rented house for a person with a disability, mainly for medical reasons, are medical expenses”.

As written, it appears that qualifying expenses are limited to special plumbing fixtures, yet upon further discussion with the IRS, it is intended that conditions which apply to an owner occupied property (listed above), also apply to rental property.

Example: John has arthritis and a heart condition. He cannot climb stairs or get into a bathtub. On his doctor’s advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. John can include the entire amount he paid as medical expenses.

IRS Publication 502 provides information on eligible Medical and Dental Expenses.  To order Federal Tax forms, instructions, and publications call the IRS at 1-800-829-3676; TTY 1-800-829-4059.

You can also call the IRS with your Federal tax questions at 1-800-829-1040; TTY call 1-800-829-4059.


MINNESOTA SPECIAL PURCHASE REFUND CLAIM
Sales Tax Refund

In the State of Minnesota, if you purchase a stair lift, ramp or elevator for installation at the principal residence of a person with a disability, you may request a refund of the sales tax paid if the item purchased is authorized by a physician.  This refund also applies to building materials used to install or construct these items.

In order to claim the refund, you must fill out Minnesota Revenue Form ST11P and attach:

  • A physician’s prescription for the items purchased
  • A copy of invoices showing sales tax paid

For more information on the State of Minnesota “Special Purchase Refund Claim” go to: http://taxes.state.mn.us/forms/Documents/st11p.pdf

or call the Minnesota Department of Revenue at 651-296-6181; TTY users call 711 for the Minnesota Relay System.

Although we have researched and extracted information from the Federal and State web-sites, it is always recommended you check with your tax accountant if you have any additional questions.

We hope this information is beneficial to you!

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