Special Needs and Income Taxes




Are you the family member or caretaker of an individual with special needs, or an individual with special needs? If you or your loved one, as an individual with special needs, meets the government definition of “disabled,” you may be able to take advantage of tax benefits for related expenses. This post will focus on some of those greatest benefits. However, if a Special Needs Trust is involved, there are special considerations which may complicate your tax related decisions – a topic deserving of its own post and therefore not discussed here. Whether or not a trust is involved, read on to learn about some of the tax benefits associated with special needs related expenses, and, as always, be sure to discuss any decisions with your attorney and accountant.

Home Modifications and the Medical Expenses Deduction

If a home was modified with the purpose of increasing accessibility, a deduction may be available as an itemized medical expense. The deduction is not available to the extent that the modification increases the value of the home, nor is it available for modifications which are purely aesthetic in nature. For example, if an improvement related to accessibility costs $30,000, but the home value is increased by $20,000, only the difference – $10,000 – would be available as a deduction. Further, because this is an itemized medical related deduction, the expenses must also exceed 10% of Adjusted Gross Income (AGI) in 2016 to be deductible. Still, this may be a valuable tax benefit as home improvements can be costly and may easily exceed this threshold.

Conferences and/or Seminars and the Medical Expenses Deduction

If you attend educational events such as seminars or conferences relating to special needs, the costs may be deductible as medical expenses if such expenses were essential to the medical care of your dependent. Just as with home modifications, this is an itemized deduction that will need to exceed 10% of AGI (in 2016) before tax benefits may be realized. Travel expenses for an out of town event may be deductible, though lodging and meals will not be. To deduct these costs, be sure to obtain something in writing from your dependent’s physician recommending that you attend and specifically addressing that the recommendation is based on your dependent’s medical needs.

Special Schools and the Medical Expenses Deduction

Costs for education are generally not deductible under the medical care deduction. However, if your dependent is enrolled in a school and the principal reason for that enrollment is that the school will mitigate the dependent’s disability, the costs of enrollment – potentially including even room and board – may be deductible to the extent that 10% of AGI (in 2016) is exceeded. This deduction can be complicated and should be discussed with your attorney or accountant.

The Tax Credit for Child and Dependent Care Expenses

The credit that is available for child or dependent care for those without special needs is also available and should not be overlooked for a child or dependent with special needs. To claim the credit, you must pay someone else to care for the child or dependent so that you can work and earn income. The person providing the care must generally be someone other than a family member. This credit is further discussed in IRS Publication 503.

The Tax Credit for the Elderly and Disabled

There may be a tax credit available if you or your spouse is over the age of 65, or if one of you is under age 65 but permanently and totally disabled and receiving taxable disability income. There may be an even larger tax credit available to someone who is permanently and totally disabled and receiving taxable disability income but is under age 18. The credit is limited based on income and can be very complicated. Be sure to consult your attorney or accountant, and IRS Publication 524.

While the expenses associated with caring for an individual with special needs can be costly, these tax benefits can help to mitigate those costs. If you have questions about deducting a special needs related expense or claiming a tax credit, IRS Publications 907 and 3966 are helpful resources. Please also feel free to contact Mammel Law at 248-644-6326 for assistance.

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