Medical & Dental Expenses (7.5% AGI Floor)

Medical and dental expenses are itemized deductions claimed on Schedule A (Form 1040). The deduction is subject to a significant limitation: only expenses exceeding 7.5% of your Adjusted Gross Income (AGI) are deductible.

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The 7.5% AGI Floor Calculation

Formula: Deductible Medical Expenses = Total Qualified Medical Expenses - (AGI x 7.5%)

Example Calculation:

EA Exam Tip: The 7.5% threshold has been permanently extended. Previously it was scheduled to increase to 10%. Always calculate the floor first, then subtract from total expenses.

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Whose Expenses Qualify?

You can deduct medical expenses paid for:

• Yourself
• Your spouse
• Your dependents (at the time services were provided OR when you paid for them)
• Individuals who would have been your dependent except:
  • They had gross income of $5,050 or more in 2024, OR
  • You (or your spouse) could be claimed as a dependent on someone else's return

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Deductible Medical Expenses

Healthcare Providers & Services

• Physicians, surgeons, dentists, and specialists
• Chiropractors, psychiatrists, psychologists
• Hospital services and nursing care
• Laboratory fees and diagnostic tests
• Acupuncture treatments
• Alcohol and drug addiction treatment (inpatient)
• Smoking-cessation programs and prescription drugs for nicotine withdrawal

Prescriptions & Medical Supplies

• Prescription medications
• Insulin (even without a prescription)
• Eyeglasses, contact lenses, and hearing aids
• Crutches, wheelchairs, and other medical equipment
• Guide dogs and service animals (including care and training)

Insurance Premiums (When Paid with After-Tax Dollars)

• Health insurance premiums
• Medicare Part B and Part D premiums
• Medicare Supplement (Medigap) policies
• Qualified long-term care insurance (subject to age-based limits)

Long-Term Care Insurance Premium Limits (2024)

EA Exam Tip: Self-employed individuals can deduct 100% of qualified long-term care premiums (up to age-based limits) as an adjustment to income on Schedule 1, not as an itemized deduction.

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Medical Travel Deduction

You can deduct transportation costs for medical care, including:

Standard Mileage Rate (2024)

21 cents per mile for medical travel (decreased from 22 cents in 2023)

What's Included:

• Mileage to and from doctor's appointments, hospitals, pharmacies
• Parking fees and tolls (in addition to mileage)
• Ambulance services
• Bus, taxi, train, or plane fare for medical treatment

Lodging While Away from Home

• $50 per night per person limit for lodging while receiving medical care away from home
• Lodging for a companion (parent with sick child) also qualifies at $50/night
• Meals are generally NOT deductible unless provided as part of inpatient care

Example:

A taxpayer drives 500 miles round trip for specialized medical treatment.

• Mileage deduction: 500 x $0.21 = $105
• Plus parking at hospital: $20
• Total deductible transportation: $125

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Capital Improvements for Medical Purposes

Home improvements for medical care may be deductible if they are primarily for medical purposes.

Fully Deductible Improvements (No Value Added)

These typically don't increase home value and are fully deductible:

• Wheelchair ramps at entrances/exits
• Widening doorways and hallways
• Installing grab bars and railings in bathrooms
• Modifying kitchen cabinets for wheelchair access
• Installing stair lifts and porch lifts
• Modifying smoke detectors and warning systems for the deaf

Partially Deductible Improvements

If the improvement increases property value, only the excess cost over the value increase is deductible.

Example:

EA Exam Tip: Swimming pools and spas are rarely deductible. They must be prescribed by a physician and must not be used for general recreation. Even then, only the excess cost over any increase in property value qualifies.

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Non-Deductible Medical Expenses

NEVER Deductible:

• Cosmetic surgery (unless correcting deformity from congenital abnormality, accident, or disfiguring disease)
• Gym memberships and health club dues (even if recommended by a doctor)
• General health items: toothpaste, toiletries, cosmetics
• Over-the-counter medicines (except insulin)
• Nicotine gum and patches that don't require a prescription
• Controlled substances illegal under federal law (including marijuana, even if legal under state law)
• Funeral and burial expenses
• Teeth whitening
• Electrolysis and hair transplants (cosmetic)
• Maternity clothes
• Diaper services

Special Rule - Insurance Premiums NOT Deductible:

• Premiums paid through an employer's cafeteria plan (pre-tax)
• Premiums paid from a Health Savings Account (HSA)
• Premiums paid with Flexible Spending Account (FSA) funds
• Life insurance premiums
• Disability insurance premiums for lost wages

EA Exam Tip: The key question is whether premiums were paid with pre-tax or after-tax dollars. Only after-tax premium payments qualify as medical expense deductions.

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Timing Rules

Cash Method Rules Apply

• Deduct expenses in the year paid, not the year services were provided
• Credit card charges are deductible when charged, not when the bill is paid
• Checks are deductible when mailed or delivered

Reimbursements

• Expenses reimbursed by insurance are NOT deductible
• If reimbursement is received in a later year after taking a deduction, it may be taxable income (tax benefit rule)

Prepaid Expenses

• Generally deductible in year paid if payment is for services to be received within 12 months

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Summary Table: Deductible vs. Non-Deductible