Be Tax Savvy! Medical Expense Deductions

By Tanya Roth, Esq. on February 11, 2010 | Last updated on March 21, 2019

William Halby learned that the medical expense deduction income tax rules aren't as broad as he originally thought. The IRS wouldn't let him deduct expenses paid to prostitutes.

But, of course, how was he to understand section 213 of the Tax Code, after all, he was only a mere tax lawyer?

You see, Halby, 78, claimed that the health benefits of sex therapy allowed him to deduct his visits to his "service providers" as medical expenses. The IRS and Tax Court weren't following.

So, what expenses may be included under the medical expense deduction rules?

Under the medical expense deduction rules, the IRS allows a deduction in the income tax calculation for medical expenses paid or incurred by the taxpayer for the care of the taxpayer, taxpayers spouse or taxpayer's dependents.

But wait -- there is a floor. The deductions are only allowed for "extraordinary" medical expenses.

Huh?

Well, according to income tax rules, only expenses that are greater than 7.5% of the taxpayer's adjusted gross income are deductible in the income tax calculation.

Perhaps an example would illustrate this better. Imagine a taxpayer who makes $100,000. The taxpayer has medical expenses of $10,000. Ask yourself, what is 7.5% of the salary of $100,000?

It's $7,500. Now, by how much did the taxpayer go over $7,500? If we subtract $7,500 from the total amount spent on medical expenses ($10,000), we have the answer. The taxpayer can deduct $2,500 in medical expenses.

Sound simple, right?

But what are medical expenses, anyway? And why wasn't Mr. Halby allowed to deduct his expenses?

The Tax Court reasoned that despite the magazine clippings that Mr. Halby showed, which stated the health benefits of sex therapy, the expenses needed to be for "the diagnosis, cure, relief or treatment of disease or bodily malfunction, for medical insurance, and for transportation and lodging while seeking care."

Mr. Halby, however, had not seen a doctor, nor had he ever discussed sex therapy with a doctor. There was no way that the IRS would allow his "therapy" without a diagnosis from a doctor.

On a different note, lodging and transportation are deductible, too, provided that they are reasonable for the treatment of the sickness. The magic word is "reasonable," which is essentially a lawyer word, so if you do have such lodging that you want to deduct, check with your tax advisor.

Finally, you can sometimes even deduct improvements you make on your home, if they are necessary for medical treatment. But, there are other tax implications here, especially if the improvement increases the value of the house. Once again, check with a tax advisor.

So as for Mr. Halby, he had to pay up his tax. But nevertheless, the medical deduction can be helpful to many people, so be sure to keep it in mind if you've had any large medical expenses.