Key Tax Deductions: Medical, Travel, Interest, Charity

Medical Expenses

• Expenses for diagnosis, cure, relief, treatment, or prevention of disease for the taxpayer, spouse, and dependents.
• Gross Income Test and Gross Return Test are waived.
• Divorced Parents: The parent who pays the expense gets the deduction.
• Amounts must be paid in the year the expense is claimed.
• Medical expenses are deductible in the year actually paid.
• Medical expenses are deductible when insurance reimbursements are in excess of 10% of Adjusted Gross Income (AGI).

Travel Costs for Medical Care

• Automobile: 23.5 cents/mile, plus parking and tolls.
• Meals:
  • 50% deductible for travel to and from a facility.
  • 100% deductible at the facility.
• Outpatient Care: No deduction for travel.
• Lodging: $50 per person, subject to conditions:
  • Travel must be essential for medical care.
  • Care must be provided at a licensed hospital or similar facility.
  • The trip must not be primarily for pleasure.
• Health Insurance Premiums:
  • Employee: 100% deductible for.
  • Self-Employed: 100% deductible from.
• Long-Term Care (LTC): Deductible if chronically ill for more than 90 days.

Deductible Capital Expenditures

• Expenses which do not affect home value are fully deductible.
• Expenses that affect home value are deductible to the extent they increase Fair Market Value (FMV).
• Costs for removing structural barriers are fully deductible.
• Maintenance Costs are fully deductible.

Deductible Taxes

• Self-Employed: Section 162 rental deduction.
• State and Local Taxes (SALT): Property tax, personal property tax (ad valorem), and foreign income taxes are deductible when paid or withheld.
• Real Estate Taxes: Based on the number of days owned.
• Local Improvement Taxes:
  • Non-deductible if only the property benefits.
  • Deductible if the community benefits.

Deductible Interest Expenses

• Trade or Business Interest: Taxpayer must have materially participated.
• Investment Income Interest: Interest paid for the production of dividends, bonds, or royalties.
• Qualified Residence Interest: For primary and secondary residences.
• Student Loan Interest: For higher education.

Net Investment Income (NII)

• Investment Interest Expense: Subject to a 2% of AGI limitation.
• Net Investment Income - Interest Expense = Interest Carryforwards.

• Personal Interest: Never deductible.
• Acquisition Indebtedness: Debt incurred for acquiring or improving a primary or secondary home.
• Home Equity Indebtedness: Loans for primary or secondary residences, or other purposes.
  • Lesser of $100,000 or Fair Market Value minus acquisition indebtedness.
• Student Loan Interest: Maximum $2,500, for half-time students.
• Qualified Expenses: Reduced by employer-provided assistance and U.S. savings bond interest.
• Phase-Out: Deductible amount * (Modified AGI - $65,000 or $130,000 / $15,000 or $30,000) = Reduction.
• Loans in Bank Account: Considered investment until withdrawn.

Charitable Contributions

• Automobile: 14 cents/mile.