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The Medical Expense Deduction After Tax Reform

Tax Information Tax Updates
Two lady doctors sitting on the table reviewing medical expenses

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The medical expense deduction didn’t escape the Tax Cuts and Jobs Act. Read on to understand the adjustments made to that common tax deduction.

The medical expense deduction “floor” changed for 2018

After President Trump officially signed tax reform into law, the “floor” for medical expense deductions went down to pre-Affordable Care Act (ACA) levels for 2017 and 2018. That level or “floor” is 7.5%. And ultimately, that means you can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI), regardless of your age, on your 2017 and 2018 returns. Before that change, the floor was 10% for individuals under the age of 65.

Here’s how that breaks down on your tax return:

Let’s say your AGI in 2018 is $50,000, and you have $4,875 of qualified medical expenses. To calculate the medical expense deduction “floor” on your income, you need to multiply $50,000 by 0.075 (7.5%). Once calculated, you’ll find that equals $3,750. And that means $1,125 of your costs are tax deductible. To reiterate, only the portion of your medical costs that exceed 7.5% of your AGI are deductible.

The medical expense deduction “floor” changes again in 2019

The floor for medical expenses will undergo another adjustment in 2019 as it rises back up to 10% for all taxpayers.

At that time, no matter how old you are, you can only deduct the amount of your qualified medical expenses that exceed 10%of your AGI.

What are qualified medical expenses?

Qualified medical expenses include:

  • hospital care
  • ambulance and other medical transport expenses
  • doctor visits
  • modification of your home for medical reasons
  • prescribed medicines
  • health insurance premiums paid with after-tax dollars (including long-term care premiums)
  • surgeries
  • dental and vision care
  • preventative care

How do I claim the medical expense deduction?

You must itemize your deductions to write off your medical costs. In doing so, the total amount of qualified medical expenses you paid during the year goes on line 1 of Schedule A, and the difference between your expenses and 7.5% of your AGI goes on line 4.

If you followed the example above, you’d list $4,875 on line 1 and $1,125 on line 4. The number listed on line 4 goes toward reducing your taxable income.

Does the increased standard deduction impact my medical expense deduction?

By now, you’ve probably heard the standard deduction approximately doubled for most tax filers as a result of tax reform. In 2017, the standard deduction for single filers was $6,350, and now it’s $12,000.

That means unless you have over $12,000 in total itemized deductions for 2018, you’re better off taking the standard deduction. And in that case, you won’t need to worry about deducting your medical expenses.

But wait – does that mean I lost deductions?

If you feel like you “lost” the ability to itemize your deductions this year, don’t sweat it. You’re not really worse off.

For instance, let’s say you filed a joint return with your spouse in 2017, and your itemized deductions were $18,000. You claimed those itemized deductions and saved on your 2017 tax bill. Fast forward to 2018, your itemized deductions are still $18,000, but your standard deduction is $24,000. You’re better off claiming the standard deduction now because it’s higher in value than your itemized deductions.

This article is for informational purposes only and not legal or financial advice.
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