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Home Improvement 2006  

Paying the price

  Once you've attached a price tag to your next project, check out if and how you can afford it.
Medical needs can help pay for remodeling

If you plan to grow old in your house, you'll probably need to have your home change as your body does. If you end up using a wheelchair, you'll need doorways wide enough to accommodate it. Respiratory problems might require air conditioning or special air filters.

Remodel it right, and the tax deductions will come.

The Internal Revenue Service offers write-offs for homeowners forced to make medically related alterations. However, like most things IRS, "these things aren't necessarily written in English," says Scott M. Estill, a former IRS senior trial attorney who now operates his own law practice in Littleton, Colo.

As author of "Tax This! An Insider's Guide to Standing Up to the IRS," he helps taxpayers unravel the IRS mystery. If you can say, "But for the medical condition, I would not have made this home improvement," you have a deduction.

Ground rules
Many homeowners think that only people who are bound to wheelchairs are eligible for the break. But temporary health setbacks count, too. If multiple broken bones require a wheelchair ramp and landscaping to make it blend with your house to get you through even four months, Uncle Sam allows it.

The possibilities are greater than you might think. Here are some of the more common deductions for improvements that accommodate a medical condition:

  • entrance/exit ramps.
  • widening doorways.
  • installing elevators or chairlifts.
  • modifying stairs and/or installing special handrails throughout the house.
  • modifying or lowering kitchen cabinets to accommodate a wheelchair.
  • installing air-filtration/air-conditioning systems.
  • bathroom modifications to accommodate the disabled.
  • grading grounds outside the front door to provide easier access to the home.
  • modifying/adding new warning systems such as smoke-, fire- and health-alert calling systems.
  • lowering light switches to wheelchair-accessible heights.
  • modifying electrical outlets.
  • swimming pools, whirlpool or Jacuzzi tubs -- but only if there aren't less-expensive alternatives, such as using the neighbor's pool.
  • redoing drywall to remove mold.

Homeowners can't abandon common sense in this smorgasbord, however. For starters, says Sandy Botkin, CPA, CEO of the Tax Reduction Institute and author of "Lower Your Taxes -- Big Time," you must make the improvement to alleviate or address a specific medical condition. Being generally overweight won't work, but obesity meets the medical criteria. Aching joints won't get you as far as an official case of arthritis.

And only the treatment counts, so if your physician prescribes a filter to eliminate pollen in your home, but you buy an entire central air-conditioning system, only that filter is deductible.

"The IRS is most likely to challenge big expenses like elevators, outdoor decks and swimming pools -- improvements that also could be done for nonmedical reasons," says Estill. "It's like when the IRS audits a business. They're not after advertising and telephone bills. They look at meals, entertainment, travel -- things that have a lot of fun associated with them."

That's not to say swimming pools are an automatic audit flag, but writing off a $20,000 pool on a $40,000 income might attract unwelcome attention. So if you intend to deduct, cross all the t's on the paperwork.

Second, make sure you secure a note from the doctor stating that water therapy is critical to your treatment or recovery, not simply that you need to get exercise, Estill says.

"The more long-term the illness or disability, the more likely the IRS will permit it," he says. "If you say, 'I put in a swimming pool because I have a three-month rehabilitation program after surgery,' good luck. I won't make you any guarantees if I represent you in that one."

Third, keep the reins on the expense sheet. Botkin shakes his head at the couple who ordered European tiles to match their home's decor, went whole hog on the surrounding deck, splurged on automation and ran up a $195,000 bill.

"The tax court only allowed the reasonable cost of the pool -- end of story," he says.

-- Posted: April 12, 2006
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