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Shane Fitzgerald ACC 413-0001 – Concepts and Strategies of Taxation Research Memo
RE: Deductions for medical expenses
September 22, 2011

Facts:Janice was injured in an accident and prescribed 6 months of physical therapy in a swimming pool. She does not live within an hour of the nearest public pool and wants to build a pool in her backyard. Janice lives alone and her annual Adjusted Gross Income is $50,000.

Issue: Is the cost to build and maintain a pool for Janice in part, or completely deductible as a medical expense?

IRC Sec. 213 (a) (d) (1.)
Reg §1.213-1 (e) (i) (ii) (iii)
Rev. Rul. 83-33, 1983-1 CB 70, IRC Sec(s). 213
HAINES v. COMMISSIONER, 71 TC 644, Code Sec(s) 213

Janice will be allowed to deduct the amount of cost to build her pool which exceeds both the amount it will increase the value of her property and 7.5% of her Adjusted Gross Income. She will also be able to deduct the cost to maintain the pool for the first year for a total medical expense deduction of $4,750.

IRC Sec. 213 (a) says that medical expenses paid during the year that were not covered by insurance are deductible, “to the extent that such expenses exceed 7.5 percent of adjusted gross income.” Janice's Adjusted Gross Income is $50,000, thus she can only deduct medical expenses if they exceed $3,750. However, the cost to build her pool was a capital expenditure because it increased the value of her home. Capital expenditures are typically not deductible but in Janice's case, Reg §1.213-1 (e) (iii) says:

a capital expenditure which is related only to the sick person and is not related to permanent improvement or betterment of property, if it otherwise qualifies as an expenditure for medical care, shall be deductible... a capital expenditure for permanent improvement or betterment of property which would not ordinarily be for the purpose of medical care... may, nevertheless, qualify as a medical expense to the extent that the expenditure exceeds the increase in the value of the related property, if the particular expenditure is related directly to medical care.

Her pool qualifies as a medical expense because of her doctor's prescription. Under this regulation, the cost of her pool ($20,000) less the value added to her home ($12,000) will be deductible as a medical expense. This amount ($8,000) less the allowance of deduction ($3,750) leaves her with a total of $4,250 she can deduct for the construction of her pool. She can also deduct $500 this year for maintenance of her pool because, “expenditures for the operation or maintenance of the capital asset would also qualify provided that the medical reason for the capital expenditure still exists. The entire amount of such operation and maintenance expenditures qualifies, even if none or only a portion of the original cost of the capital asset itself qualified” [Reg §1.213-1 (e) (iii)]. In subsequent years she will not be able to deduct the maintenance cost unless her doctor renews her prescription of physical therapy in a swimming pool.

The example used in Rev. Rul. 83-33, 1983-1 CB 70, IRC Sec(s). 213 is nearly identical to Janice's case in which a physician prescribed physical therapy treatment by swimming and the individual constructed a pool for medical use. “The courts have distinguished personal expenditures that are merely beneficial to the general health of the individual from those that have as their purpose medical care, the prevention or alleviation of a physical or mental defect or illness.” The pool Janice will construct will provide her with the best treatment for her condition.

In the case of HAINES v. COMMISSIONER, 71 TC 644, Code Sec(s) 213, the court ruled that the primary purpose of building a swimming pool was not directly related to the medical care required. The judge decided:

During the period special therapy for his leg was required, it could have been secured through other far less costly...
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