Before+After: Second Chance

Home Mods Pay The hard facts of remodeling for someone who needs home modifications due to medical reasons is that often they don’t have the wherewithal to pay. The person may have lost a job or be on disability.

But for those who can afford it, remodelers should suggest that they seek tax advice. In certain circumstances, homeowners can recoup nearly 30% of a project’s cost due to medical reasons.

According to George Saenz, a Miami CPA and contributor to BankRate.com, any improvement needed for medical reasons that doesn’t increase a home’s value can be claimed as a medical deduction. However, the homeowner must already itemize deductions, such as mortgage interest, state taxes, and charitable donations. About 35% of Americans itemize deductions, typically homeowners with more than $30,000 in annual household income, Saenz says.

Medical deductions, including the remodeling work, must exceed 7.5% of adjusted gross income.

As an example, take a couple earning $150,000, in the 28% tax bracket. They’d pay $26,000 in federal taxes and $9,200 in state taxes in California. Contracting for a $50,000 bathroom remodel that included such things as a roll-in shower and grab bars, they’d subtract their $11,250 in deductions (or 7.5% of their income) from the bathroom remodel’s cost to arrive at a medical deduction of $38,750.

Homeowners Chris and John Carmean (left) and remodelers Lori and Bruce Bentley. Photo: William Helsel Architectural Photography That would drop their federal taxes to $16,000; their state taxes would be cut to $5,500. They’d receive a $10,000 IRS refund, and $3,700 from the state. So, in this example, the homeowners would recoup 27% of remodeling costs.

Saenz says oftentimes modifications detract from resale value and that it’s not hard to prove to the IRS that changes are needed for medical reasons. Experts suggest getting a prescription from a doctor as a permanent record that home modifications are medically necessary.

“The last thing the IRS wants to do is split hairs with someone in a wheelchair,” Saenz says. (To learn more, download Publication 502 at www.irs.gov.)