Ordinarily, you cannot deduct the cost of permanent improvements to your home. However, there is an exception: These costs can be tax deductible as medical expenses if their main purpose is medical care for you, your spouse, or your dependents.
But, such expenses are deductible only if you itemize your deductions and only to the extent they exceed 10% of your adjusted gross income for the year (7.5% if you're 65 or over). Moreover, the cost of the improvement must be reduced by the amount it increases the value of your property. If the value of your property is not increased by the improvement, the entire cost can be included as a medical expense.
Among the expenses that can be deductible are improvements to make your home wheelchair accessible or to make it easier for a disabled person to get around the home, including:
Improvements such as these are not considered to add value to your home and are fully deductible as medical expenses.
Other improvements that do add value to your home can be deductible as well--for example, installing an elevator so that a disabled person does not have to use stairs, or installing a new bathroom on the ground floor of your home to avoid having to use stairs. Improvements such as these increase the value of your property, and may be deducted only to the extent they exceed the increase in the home value caused by the improvement.
Example: You have a heart ailment. On your doctor's advice, you install an elevator in your home so that you will not have to climb stairs. The elevator costs $8,000. An appraisal shows that the elevator increases the value of your home by $4,400. You may deduct $3,600 of the $8,000 expense as a medical deduction.
It can even be possible to deduct the cost of adding a swimming pool to your home. However, use of the pool must be prescribed by a doctor as medical treatment or physical therapy. Thus, for example, you can't deduct the cost of a pool because swimming is good exercise. Moreover, the IRS may question the deduction unless the pool is specially designed for medical treatment. For example, the IRS permitted a deduction by an osteoarthritis patient whose doctor prescribed swimming several times a day as treatment. He built a special indoor lap pool with specially designed stairs and a hydrotherapy device.
You can also deduct amounts you pay for operation and upkeep of an improvement, as long as the main reason for them is medical care. This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense.
Example: If, in the previous example, the elevator increased the value of your home by $8,000, you would have no medical expense deduction for the cost of the elevator. However, the cost of electricity to operate the elevator and any costs to maintain it are deductible medical expenses as long as the medical reason for the elevator exists.
To learn more about what medical costs you can deduct, see Nolo's Medical Deductions area.