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WHAT'S A MEDICAL EXPENSE?

December 10, 2007

A new Revenue Ruling, Rev. Rul. 2007-72, illustrates the medical deduction rules for routine exams, optional diagnostic procedures, and home pregnancy tests (emphasis added):

In Situation 1, the amount A pays for the annual physical examination is for diagnosis and qualifies as an expense for medical care even though A is not experiencing any symptoms of illness.

In Situation 2, the amount B pays for the full-body scan is for diagnosis and qualifies as an expense for medical care even though B is not experiencing symptoms of illness and has not obtained a physician's recommendation before undergoing the procedure. The procedure serves no non-medical function and the expense is not disallowed because of the high cost or possible existence of less expensive alternatives.

In Situation 3, the amount C pays for the pregnancy test qualifies as an expense for medical care even though its purpose is to test the healthy functioning of the body rather than to detect disease.

Few returns actually benefit from the medical expense deduction because non-reimbursed costs have to exceed 7.5% of adjusted gross income before they count. The ruling is important, though, in that the same rules govern expenses that can be used for determining allowable expenses for Health Savings Account and cafeteria plan withdrawals.

While the link hasn't gone live as this is posted, it should be available soon here.

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