Q: I have to move from my second floor condo to a ground floor because the steps are too much for me as I have a medical issue. Are my moving expenses tax deductible ? What if I were to install an elevator?
A: As a moving expense, no way. For one thing, it doesn't even pass the distance test. However, not all is lost. It sounds to me like the elevator might be a deductible medical expense. Here's what IRS Publication 502, "Medical Expenses" has to say...
You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value of your property. The difference is a medical expense. If the value of your property is not increased by the improvement, the entire cost is included as a medical expense.
Certain improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. These improvements include, but are not limited to, the following items: [an elevator is one example]
So, let's say that you spent $5000 to put in the elevator (which are mainly to facilitate your medical condition). This increased the fair market value of your home by $3000. You would be allowed to take a $2000 medical expense deduction.
How does one do this? There are three basic ways to do it:
- If you have a tax-free fund like an HSA, FSA, or HRA, monies here could be used for the $2000
- You can take a penalty-free withdrawal from an IRA to the extent that you have medical expenses which exceed 7.5% of your AGI
- You can take a medical itemized deduction on those unreimbursed medical expenses which exceed 7.5% of AGI (10% if you're an AMT taxpayer)
If none of those are available, the cost of the new elevator will simply add to the cost basis of your home.