As if 7.5% was not already almost impossible to achieve. Increasing to 10%, now that is just ridiculous if you ask me and another bait and switch move When an individual itemizes deductions, one of those deductions is the cost of medical and dental expenses, including health insurance premiums. However, the medical expense deduction has been historically limited to the amount that exceeds 7.5% of a taxpayer’s adjusted gross income (AGI).
With passage of the Affordable Care Act, commonly referred to as Obamacare, the percentage of AGI that reduces medical expenses was increased to 10%, but was retained at 7.5% for taxpayers age 65 and over (for married seniors if either spouse is age 65 or over). However, this lower percentage of AGI for seniors expires after 2016, and beginning for the year 2017, the limitation percentage for them also becomes 10%, which can result in a substantially lower medical deduction for seniors. Affordable Care, has become not so affordable for even the people who need care. Here is an example, if your AGI is $65,000, then your medical expenses will need to exceed $6,500, and the amount deductible is only the amount over the $6,500. So, if your medical expense for the year was $5,500 your allowable deduction is $0, but if your medical expenses were 7,500 then your allowable deduction will be $1,000. You will not get to deduct the entire amount only the amount that exceed the 10%. You can only claim the deduction if you itemize and sufficient documentation.
Some tax pro may suggest senior citizen to accelerate their medical expense as this year come to an end to claim the tax deduction with the lower 7.5%. I would strongly disagree unless you already itemize and exceed the 7.5% of your AGI significantly where the cost for the medical expense make sense relative to the allowable deduction. You may also want to be cautioned, because if you ordinarily claim the standard deduction instead of itemizing deductions on your return, accelerating your medical expenses into 2016 may not result in any tax savings for you. If you have questions, let us know.
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