Can You Claim Medical Marijuana on Your Taxes?
Understand the tax implications of medical marijuana, including eligibility for deductions, federal vs. state rules, and necessary documentation for reporting.
Medical marijuana is legal in many states, but tax rules surrounding it are complex. Many taxpayers wonder whether they can deduct medical cannabis expenses like other healthcare costs, especially with a prescription or doctor’s recommendation.
Tax laws treat medical marijuana differently at the federal and state levels, creating confusion for those looking to claim it on their tax return. Understanding these regulations and required documentation is essential before attempting any deductions.
Criteria for a Deductible Medical Expense
To qualify as a deductible medical expense, an item must meet IRS requirements under Section 213 of the Internal Revenue Code. The expense must be primarily for diagnosing, curing, mitigating, treating, or preventing disease or affecting any structure or function of the body. General health or wellness costs do not qualify.
The IRS also requires that the expense be unreimbursed, meaning it cannot be covered by insurance, an employer-sponsored plan, a health savings account (HSA), or a flexible spending account (FSA). Additionally, medical expenses are deductible only if they exceed 7.5% of a taxpayer’s adjusted gross income (AGI). For example, if someone has an AGI of $50,000, only the portion of their medical expenses exceeding $3,750 would be deductible.
Differences in Federal and State Tax Treatment
The tax treatment of medical marijuana is complicated by conflicting federal and state laws. While many states allow medical cannabis use, the federal government classifies it as a Schedule I controlled substance under the Controlled Substances Act. Because of this classification, the IRS does not recognize medical marijuana as a deductible medical expense, even if legally prescribed by a doctor.
This means taxpayers cannot deduct medical marijuana costs on their federal tax return. This restriction applies to dispensary purchases, medical cannabis cards, and associated fees. Unlike traditional prescription medications, which are deductible if prescribed by a licensed healthcare provider, medical cannabis remains excluded due to its federal status.
At the state level, tax treatment varies. Some states that have legalized medical marijuana allow residents to deduct these expenses on their state income tax returns. For example, California permits taxpayers to include medical cannabis costs as part of their itemized deductions for medical expenses if they meet the state’s deduction threshold. Other states, such as New York and Illinois, do not offer such deductions, aligning with federal regulations.
Taxpayers must review their state’s tax laws to determine eligibility. Since tax codes change frequently, staying updated on legislative changes is necessary. Additionally, some states impose special taxes on marijuana sales, such as excise or retail taxes, which are generally not deductible, even in states that allow medical marijuana deductions.
Required Documentation and Receipts
Maintaining thorough records is necessary when tracking medical expenses. Taxpayers looking to claim eligible deductions on their state return must have detailed receipts from dispensaries specifying the date of purchase, amount paid, and itemized descriptions of the products obtained. A credit card statement or bank transaction record alone is insufficient, as it does not verify the nature of the expense.
Beyond receipts, keeping copies of physician recommendations or state-issued medical marijuana cards further strengthens documentation. Some states require proof that the cannabis was obtained legally under a medical program, making it important to retain official paperwork demonstrating compliance with state laws. If an audit occurs, having this documentation readily available helps substantiate the claim.
Organizing these records systematically ensures easy access when preparing tax returns. Using a dedicated folder—either physical or digital—can streamline the process, especially if multiple purchases are made throughout the year. Taxpayers should also consider maintaining a log that tracks purchase dates, product types, and intended medical use. This additional detail can help clarify the legitimacy of expenses if questioned.
Reporting on Tax Forms
When preparing a state tax return that allows medical marijuana deductions, knowing which forms to use and how to categorize expenses is necessary to avoid errors. Most states that permit these deductions require taxpayers to itemize medical expenses on a state-specific version of Schedule A or a comparable form used for detailing deductible healthcare costs.
Accurate categorization is important. Some states require medical cannabis costs to be listed separately from other medical expenses, while others allow them to be combined under general healthcare deductions. Failing to follow reporting guidelines could lead to an inquiry or adjustment to the claimed deduction. Taxpayers should also confirm whether their state imposes any caps or limitations on the amount that can be deducted, as some jurisdictions restrict the total allowable deduction for alternative treatments, including medical marijuana.