When an individual itemizes deductions, one of those deductions is the cost of medical and dental expenses, including health insurance premiums. However, the medical expense deduction has been historically limited to the amount that exceeds 7.5% of a taxpayer’s adjusted gross income (AGI).
With passage of the Affordable Care Act, commonly referred to as Obamacare, the percentage of AGI that reduces medical expenses was increased to 10%, but was retained at 7.5% for taxpayers age 65 and over (for married seniors if either spouse is age 65 or over). However, this lower percentage of AGI for seniors expires after 2016, and beginning for the year 2017, the limitation percentage for them also becomes 10%, which can result in a substantially lower medical deduction for seniors.
Although there is nothing that can be done about the higher percentage of AGI reduction that begins in 2017, seniors can still take advantage of the lower 7.5% of AGI limit by maximizing their medical deductions for 2016. If you have any unpaid medical expenses, discretionary medical treatments, prescriptions you can stock up on, prescription eyeglasses that need to be replaced, dental work that needs to be done or other medical expenses that you can take care of and pay for in 2016, you may be able to benefit from the 7.5% limit in its last year. Don’t go crazy, though – that face lift or tummy tuck you’ve been thinking about and other elective cosmetic surgery don’t qualify as deductible medical expenses.
You are also cautioned to make sure you will benefit tax-wise by incurring medical expenses ahead of when you normally would. For example, if you ordinarily claim the standard deduction instead of itemizing deductions on your return, accelerating your medical expenses into 2016 may not result in any tax savings for you. If you have questions, please give us a call.
