IRS Code Section 213(d) 2018: Medical Expense Rules

Internal Revenue Code Section 213 allows individuals who itemize deductions to lower their taxable income by claiming certain medical costs. For the 2018 tax year, the Tax Cuts and Jobs Act of 2017 (TCJA) temporarily altered the deduction’s threshold, making it accessible to more people. Understanding the definitions, limitations, and reporting procedures for 2018 is important for anyone amending a past return or comprehending the tax laws of that period.

Defining a Qualifying Medical Expense

A qualifying medical expense under IRC Section 213(d) includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease. This definition also covers costs for treatments affecting any structure or function of the body. These are the unreimbursed amounts paid for yourself, your spouse, and your dependents. Common examples include fees paid to doctors, dentists, surgeons, chiropractors, and psychiatrists. The cost of prescription medications and insulin are deductible, but over-the-counter drugs are generally not.

The rules extend beyond direct payments for services and prescriptions. The cost of medical insurance premiums for policies that cover medical care are included, such as payments for Medicare Part B. You cannot deduct premiums paid with pre-tax dollars, for instance, through an employer-sponsored health plan. Similarly, any medical expenses paid using funds from a Health Savings Account (HSA) or a Flexible Spending Account (FSA) are not deductible, as those funds already provide a tax advantage.

Certain transportation costs are also considered medical expenses. This includes the actual fare for a taxi, bus, or train, as well as ambulance service. If you use your personal vehicle for medical travel, you can deduct out-of-pocket expenses for gas and oil, or use the standard medical mileage rate, which was 18 cents per mile for 2018. You can also include parking fees and tolls. Lodging costs while away from home for medical care can be included, but are subject to limits and cannot be for lavish or extravagant accommodations.

Capital expenditures for medically necessary equipment or home improvements can also qualify. This might include the cost of installing entrance ramps, modifying bathrooms to accommodate a disability, or purchasing special telephone equipment for the hearing impaired. The deductible amount for a home improvement is the extent to which the cost of the improvement exceeds the increase in the value of your property. For example, if a medically required elevator costs $20,000 but increases the home’s value by $12,000, the deductible medical expense is $8,000.

The Special 2018 AGI Threshold

For the 2018 tax year, a special rule determined the portion of medical expenses a taxpayer could deduct. The Tax Cuts and Jobs Act of 2017 (TCJA) temporarily lowered the adjusted gross income (AGI) limitation. For 2018, taxpayers were permitted to deduct qualifying medical expenses that exceeded 7.5% of their AGI. This was a temporary change from the 10% threshold that existed previously and would return in subsequent years.

Your AGI, found on Form 1040, represents your gross income minus certain “above-the-line” deductions. The lower 7.5% floor meant that taxpayers did not need to have as many medical expenses to begin qualifying for the deduction compared to the 10% threshold.

How to Calculate the Deduction

The first step is to compile and sum all of your qualifying, unreimbursed medical expenses paid during the calendar year. This total should only include costs not paid for by insurance, an employer, or with tax-advantaged funds like an HSA.

Once you have the total of your medical expenses, the next step is to find your Adjusted Gross Income (AGI) on your 2018 Form 1040. You then multiply your AGI by 7.5% to calculate the dollar amount of your limitation. This result is the portion of your medical expenses that you cannot deduct.

The final step is to subtract the 7.5% AGI threshold from your total medical expenses. If your expenses are greater than the threshold, the difference is the amount you can claim as an itemized deduction. For example, if a taxpayer had an AGI of $60,000 and total medical expenses of $7,000, their threshold would be $4,500 ($60,000 x 0.075), and their deductible amount would be $2,500 ($7,000 – $4,500).

Reporting Medical Expenses on a 2018 Return

To claim the medical expense deduction on a 2018 tax return, a taxpayer must choose to itemize deductions rather than taking the standard deduction. The TCJA significantly increased the standard deduction amounts for 2018, making it more advantageous for many filers. A taxpayer would only benefit from itemizing if their total itemized deductions exceeded their applicable standard deduction amount.

The deduction is reported on Schedule A (Itemized Deductions) of the 2018 Form 1040. On the 2018 version of Schedule A, you would enter your total medical and dental expenses on line 1. On line 2, you would enter your adjusted gross income from Form 1040. Line 3 instructs you to multiply the amount on line 2 by 7.5%. On line 4, you subtract line 3 from line 1 to arrive at your deductible amount.

Record-keeping is important when claiming this deduction. Taxpayers should retain all documentation that substantiates the claimed expenses. This includes receipts from pharmacies, bills from doctors and hospitals, and statements from insurance companies showing what was not reimbursed. These records are necessary to prove the validity of the deduction if the IRS selects the return for review.