We discovered this article just a few days ago on the website of USAToday, and it represents a bit of unexpected good news for seniors in the tax reform package recently passed on Capitol Hill and signed by President Trump. According to finance columnist Susan Tompor, “Some retirees are grumbling that young families are getting a better deal under tax reform. But seniors could be overlooking some good news for deductions for medical expenses.” Instead of eliminating medical deductions altogether – an idea that had been on the negotiating table at one point – December’s tax reform package not only preserved the medical deduction but put the deduction threshold at 7.5 percent – and not only for 2018 but retroactive to 2017 as well.
So what exactly does that mean? For seniors with lots of unreimbursed medical expenses, it can mean significant help at tax time.
The threshold works like this. In order to be deductible under the new rules, unreimbursed medical expenses must exceed 7.5 percent of a taxpayer’s adjusted gross income. Everything above that amount might be deductible (provided that you have enough total deductions to exceed the standard deduction which was just hiked considerably under the new tax rules). The USAToday article offers this simple example: “If you have $20,000 in adjusted gross income, you’d need at least $1,500 in qualifying medical expenses during 2017 to hit the threshold. And only expenses after that amount would qualify for a deduction. So, if you had $2,000 in qualifying expenses in this example, you’d be able to claim $500 in deductions for medical expenses.”
So as you prepare your 2017 taxes you should bear that medical deduction threshold in mind, and if you’re contemplating any optional medical or dental procedures that could add to out-of-pocket expense, it might be worth it to consider having those done in 2018 while the deductibility threshold remains at 7.5 percent. That’s because, unless Congress acts, the threshold rises to 10 percent in 2019.
Here are a few suggestions from our friends at the IRS about which types of medical expenses might qualify for a deduction. Just make sure you consult a tax expert concerning your specific situation – and keep really good, accurate records. Potentially deductible costs include:
- Non-reimbursed payments made to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
- Money spent by the taxpayer for residential nursing home care, if the availability of medical care is the principal reason for being in the nursing home
- Unreimbursed costs of acupuncture treatments
- Out of pocket costs related to some treatments for addiction to alcohol, drugs or smoking
- Costs of some weight-loss programs that are disease-related (but not ordinary health club dues)
- Out of pocket costs for insulin and other prescription drugs.
Of course, not to sound overly repetitive but with all the other changes to the tax code, we can’t encourage you strongly enough to get some good objective advice from a tax professional who is well versed in the new regulations. For example, here’s a brief list of some of the new stipulations that could dramatically affect the tax situation for many seniors.
- If you were considering taking out a home equity loan, you may be surprised to learn that the interest will no longer be deductible beginning in 2018 – that is, according to USAToday, “if the loan was used on things like paying for college tuition, taking a vacation or buying a new car. The loan would still be deductible if the money goes toward building, acquiring or substantially improving the home.”
- If you get divorced after December 31, 2018, you’ll no longer be able to deduct alimony payments.
- Beginning in 2018, Congress has imposed a $10,000 cap on deductions for a combined amount for personal property, real estate and state and local income taxes. Here in Washington State, where we have sales tax but no income tax, our ability to deduct sales tax beginning this year falls under this same $10,000 combined limit.
- Finally, in one of the biggest changes of all, the new rules nearly double the standard deduction for most taxpayers – a move which could dramatically affect the tax strategy for millions of middle-income couples and individuals.
Remember, however, that as important as taxes and other financial considerations may be, they represent just one portion of a comprehensive retirement strategy. At AgingOptions we call that type of well-rounded strategy a LifePlan, because it truly does represent a plan for all aspects of your “retirement life” – your finances, your housing choices, your legal protection, your medical coverage and communication with your family. If all this sounds like the kind of approach that appeals to you, we invite you to join Rajiv Nagaich of AgingOptions at a free LifePlanning Seminar, a popular and information-packed session where many of your most pressing retirement questions will be answered.
We offer these seminars at locations throughout the region, so to get all the details, click here for our Upcoming Events page – then register online or phone us for assistance. To make the most of retirement, you need some solid professional guidance and a seamless plan – and you’ll find both at an AgingOptions LifePlanning Seminar. Age on!
(originally reported at www.usatoday.com)