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H And R Block 1040ez

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H And R Block 1040ez

H and r block 1040ez 3. H and r block 1040ez   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. H and r block 1040ez Other income (nonpassive income). H and r block 1040ez Expenses. H and r block 1040ez Additional information. H and r block 1040ez Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. H and r block 1040ez Basis. H and r block 1040ez How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. H and r block 1040ez Including mutual fund or REMIC expenses in income. H and r block 1040ez Nondeductible ExpensesUsed as collateral. H and r block 1040ez Short-sale expenses. H and r block 1040ez Expenses for both tax-exempt and taxable income. H and r block 1040ez State income taxes. H and r block 1040ez Nondeductible amount. H and r block 1040ez Basis adjustment. H and r block 1040ez How To Report Investment Expenses When To Report Investment Expenses Topics - This chapter discusses: Limits on Deductions , Interest Expenses , Bond Premium Amortization , Expenses of Producing Income , Nondeductible Expenses , How To Report Investment Expenses , and When To Report Investment Expenses . H and r block 1040ez Useful Items - You may want to see: Publication 535 Business Expenses 925 Passive Activity and At-Risk Rules 929 Tax Rules for Children and Dependents Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 4952 Investment Interest Expense Deduction See chapter 5, How To Get Tax Help , for information about getting these publications and forms. H and r block 1040ez Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. H and r block 1040ez The at-risk rules and passive activity rules are explained briefly in this section. H and r block 1040ez The limit on investment interest is explained later in this chapter under Interest Expenses . H and r block 1040ez The 2% limit is explained later in this chapter under Expenses of Producing Income . H and r block 1040ez At-risk rules. H and r block 1040ez   Special at-risk rules apply to most income-producing activities. H and r block 1040ez These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. H and r block 1040ez Generally, this is the cash and the adjusted basis of property you contribute to the activity. H and r block 1040ez It also includes money you borrow for use in the activity if you are personally liable for repayment or if you use property not used in the activity as security for the loan. H and r block 1040ez For more information, see Publication 925. H and r block 1040ez Passive activity losses and credits. H and r block 1040ez   The amount of losses and tax credits you can claim from passive activities is limited. H and r block 1040ez Generally, you are allowed to deduct passive activity losses only up to the amount of your passive activity income. H and r block 1040ez Also, you can use credits from passive activities only against tax on the income from passive activities. H and r block 1040ez There are exceptions for certain activities, such as rental real estate activities. H and r block 1040ez Passive activity. H and r block 1040ez   A passive activity generally is any activity involving the conduct of any trade or business in which you do not materially participate and any rental activity. H and r block 1040ez However, if you are involved in renting real estate, the activity is not a passive activity if both of the following are true. H and r block 1040ez More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate. H and r block 1040ez You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate. H and r block 1040ez  The term “trade or business” generally means any activity that involves the conduct of a trade or business, is conducted in anticipation of starting a trade or business, or involves certain research or experimental expenditures. H and r block 1040ez However, it does not include rental activities or certain activities treated as incidental to holding property for investment. H and r block 1040ez   You are considered to materially participate in an activity if you are involved on a regular, continuous, and substantial basis in the operations of the activity. H and r block 1040ez Other income (nonpassive income). H and r block 1040ez    Generally, you can use losses from passive activities only to offset income from passive activities. H and r block 1040ez You cannot use passive activity losses to offset your other income, such as your wages or your portfolio income. H and r block 1040ez Portfolio income includes gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. H and r block 1040ez It also includes gains or losses (not derived in the ordinary course of a trade or business) from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment. H and r block 1040ez This includes capital gain distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. H and r block 1040ez   You cannot use passive activity losses to offset Alaska Permanent Fund dividends. H and r block 1040ez Expenses. H and r block 1040ez   Do not include in the computation of your passive activity income or loss: Expenses (other than interest) that are clearly and directly allocable to your portfolio income, or Interest expense properly allocable to portfolio income. H and r block 1040ez However, this interest and other expenses may be subject to other limits. H and r block 1040ez These limits are explained in the rest of this chapter. H and r block 1040ez Additional information. H and r block 1040ez   For more information about determining and reporting income and losses from passive activities, see Publication 925. H and r block 1040ez Interest Expenses This section discusses interest expenses you may be able to deduct as an investor. H and r block 1040ez For information on business interest, see chapter 4 of Publication 535. H and r block 1040ez You cannot deduct personal interest expenses other than qualified home mortgage interest, as explained in Publication 936, Home Mortgage Interest Deduction, and interest on certain student loans, as explained in Publication 970. H and r block 1040ez Investment Interest If you borrow money to buy property you hold for investment, the interest you pay is investment interest. H and r block 1040ez You can deduct investment interest subject to the limit discussed later. H and r block 1040ez However, you cannot deduct interest you incurred to produce tax-exempt income. H and r block 1040ez See Tax-exempt income under Nondeductible Expenses, later. H and r block 1040ez You also cannot deduct interest expenses on straddles discussed under Interest expense and carrying charges on straddles , later. H and r block 1040ez Investment interest does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity. H and r block 1040ez Investment property. H and r block 1040ez   Property held for investment includes property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business. H and r block 1040ez It also includes property that produces gain or loss (not derived in the ordinary course of a trade or business) from the sale or trade of property producing these types of income or held for investment (other than an interest in a passive activity). H and r block 1040ez Investment property also includes an interest in a trade or business activity in which you did not materially participate (other than a passive activity). H and r block 1040ez Partners, shareholders, and beneficiaries. H and r block 1040ez   To determine your investment interest, combine your share of investment interest from a partnership, S corporation, estate, or trust with your other investment interest. H and r block 1040ez Allocation of Interest Expense If you borrow money for business or personal purposes as well as for investment, you must allocate the debt among those purposes. H and r block 1040ez Only the interest expense on the part of the debt used for investment purposes is treated as investment interest. H and r block 1040ez The allocation is not affected by the use of property that secures the debt. H and r block 1040ez Example 1. H and r block 1040ez You borrow $10,000 and use $8,000 to buy stock. H and r block 1040ez You use the other $2,000 to buy items for your home. H and r block 1040ez Since 80% of the debt is used for, and allocated to, investment purposes, 80% of the interest on that debt is investment interest. H and r block 1040ez The other 20% is nondeductible personal interest. H and r block 1040ez Debt proceeds received in cash. H and r block 1040ez   If you receive debt proceeds in cash, the proceeds are generally not treated as investment property. H and r block 1040ez Debt proceeds deposited in account. H and r block 1040ez   If you deposit debt proceeds in an account, that deposit is treated as investment property, regardless of whether the account bears interest. H and r block 1040ez But, if you withdraw the funds and use them for another purpose, you must reallocate the debt to determine the amount considered to be for investment purposes. H and r block 1040ez Example 2. H and r block 1040ez Assume in Example 1 that you borrowed the money on March 1 and immediately bought the stock for $8,000. H and r block 1040ez You did not buy the household items until June 1. H and r block 1040ez You had deposited the $2,000 in the bank. H and r block 1040ez You had no other transactions on the bank account until June. H and r block 1040ez You did not sell the stock, and you made no principal payments on the debt. H and r block 1040ez You paid interest from another account. H and r block 1040ez The $8,000 is treated as being used for an investment purpose. H and r block 1040ez The $2,000 is treated as being used for an investment purpose for the 3-month period. H and r block 1040ez Your total interest expense for 3 months on this debt is investment interest. H and r block 1040ez In June, when you spend the $2,000 for household items, you must begin to allocate 80% of the debt and the interest expense to investment purposes and 20% to personal purposes. H and r block 1040ez Amounts paid within 30 days. H and r block 1040ez   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. H and r block 1040ez This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. H and r block 1040ez   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. H and r block 1040ez Payments on debt may require new allocation. H and r block 1040ez   As you repay a debt used for more than one purpose, you must reallocate the balance. H and r block 1040ez You must first reduce the amount allocated to personal purposes by the repayment. H and r block 1040ez You then reallocate the rest of the debt to find what part is for investment purposes. H and r block 1040ez Example 3. H and r block 1040ez If, in Example 2 , you repay $500 on November 1, the entire repayment is applied against the amount allocated to personal purposes. H and r block 1040ez The debt balance is now allocated as $8,000 for investment purposes and $1,500 for personal purposes. H and r block 1040ez Until the next reallocation is necessary, 84% ($8,000 ÷ $9,500) of the debt and the interest expense is allocated to investment. H and r block 1040ez Pass-through entities. H and r block 1040ez   If you use borrowed funds to buy an interest in a partnership or S corporation, then the interest on those funds must be allocated based on the assets of the entity. H and r block 1040ez If you contribute to the capital of the entity, you can make the allocation using any reasonable method. H and r block 1040ez Additional allocation rules. H and r block 1040ez   For more information about allocating interest expense, see chapter 4 of Publication 535. H and r block 1040ez When To Deduct Investment Interest If you use the cash method of accounting, you must pay the interest before you can deduct it. H and r block 1040ez If you use an accrual method of accounting, you can deduct interest over the period it accrues, regardless of when you pay it. H and r block 1040ez For an exception, see Unpaid expenses owed to related party under When To Report Investment Expenses, later in this chapter. H and r block 1040ez Example. H and r block 1040ez You borrowed $1,000 on August 26, 2013, payable in 90 days at 12% interest. H and r block 1040ez On November 26, 2013, you paid this with a new note for $1,030, due on February 26, 2014. H and r block 1040ez If you use the cash method of accounting, you cannot deduct any part of the $30 interest on your return for 2013 because you did not actually pay it. H and r block 1040ez If you use an accrual method, you may be able to deduct a portion of the interest on the loans through December 31, 2013, on your return for 2013. H and r block 1040ez Interest paid in advance. H and r block 1040ez   Generally, if you pay interest in advance for a period that goes beyond the end of the tax year, you must spread the interest over the tax years to which it belongs under the OID rules discussed in chapter 1. H and r block 1040ez You can deduct in each year only the interest for that year. H and r block 1040ez Interest on margin accounts. H and r block 1040ez   If you are a cash method taxpayer, you can deduct interest on margin accounts to buy taxable securities as investment interest in the year you paid it. H and r block 1040ez You are considered to have paid interest on these accounts only when you actually pay the broker or when payment becomes available to the broker through your account. H and r block 1040ez Payment may become available to the broker through your account when the broker collects dividends or interest for your account, or sells securities held for you or received from you. H and r block 1040ez   You cannot deduct any interest on money borrowed for personal reasons. H and r block 1040ez Limit on interest deduction for market discount bonds. H and r block 1040ez   The amount you can deduct for interest expense you paid or accrued during the year to buy or carry a market discount bond may be limited. H and r block 1040ez This limit does not apply if you accrue the market discount and include it in your income currently. H and r block 1040ez   Under this limit, the interest is deductible only to the extent it is more than: The total interest and OID includible in gross income for the bond for the year, plus The market discount for the number of days you held the bond during the year. H and r block 1040ez Figure the amount in (2) above using the rules for figuring accrued market discount in chapter 1 under Market Discount Bonds . H and r block 1040ez Interest not deducted due to limit. H and r block 1040ez   In the year you dispose of the bond, you can deduct any interest expense you were not allowed to deduct in earlier years because of the limit. H and r block 1040ez Choosing to deduct disallowed interest expense before the year of disposition. H and r block 1040ez   You can choose to deduct disallowed interest expense in any year before the year you dispose of the bond, up to your net interest income from the bond during the year. H and r block 1040ez The rest of the disallowed interest expense remains deductible in the year you dispose of the bond. H and r block 1040ez Net interest income. H and r block 1040ez   This is the interest income (including OID) from the bond that you include in income for the year, minus the interest expense paid or accrued during the year to purchase or carry the bond. H and r block 1040ez Limit on interest deduction for short-term obligations. H and r block 1040ez   If the current income inclusion rules discussed in chapter 1 under Discount on Short-Term Obligations do not apply to you, the amount you can deduct for interest expense you paid or accrued during the year to buy or carry a short-term obligation is limited. H and r block 1040ez   The interest is deductible only to the extent it is more than: The amount of acquisition discount or OID on the obligation for the tax year, plus The amount of any interest payable on the obligation for the year that is not included in income because of your accounting method (other than interest taken into account in determining the amount of acquisition discount or OID). H and r block 1040ez The method of determining acquisition discount and OID for short-term obligations is discussed in chapter 1 under Discount on Short-Term Obligations . H and r block 1040ez Interest not deducted due to limit. H and r block 1040ez   In the year you dispose of the obligation, or, if you choose, in another year in which you have net interest income from the obligation, you can deduct any interest expense you were not allowed to deduct for an earlier year because of the limit. H and r block 1040ez Follow the same rules provided in the earlier discussion under Limit on interest deduction for market discount bonds , earlier. H and r block 1040ez Limit on Deduction Generally, your deduction for investment interest expense is limited to your net investment income. H and r block 1040ez You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. H and r block 1040ez The interest carried over is treated as investment interest paid or accrued in that next year. H and r block 1040ez You can carry over disallowed investment interest to the next tax year even if it is more than your taxable income in the year the interest was paid or accrued. H and r block 1040ez Net Investment Income Determine the amount of your net investment income by subtracting your investment expenses (other than interest expense) from your investment income. H and r block 1040ez Investment income. H and r block 1040ez   This generally includes your gross income from property held for investment (such as interest, dividends, annuities, and royalties). H and r block 1040ez Investment income does not include Alaska Permanent Fund dividends. H and r block 1040ez It also does not include qualified dividends or net capital gain unless you choose to include them. H and r block 1040ez Choosing to include qualified dividends. H and r block 1040ez   Investment income generally does not include qualified dividends, discussed in chapter 1. H and r block 1040ez However, you can choose to include all or part of your qualified dividends in investment income. H and r block 1040ez   You make this choice by completing Form 4952, line 4g, according to its instructions. H and r block 1040ez   If you choose to include any of your qualified dividends in investment income, you must reduce your qualified dividends that are eligible for the lower capital gains tax rates by the same amount. H and r block 1040ez Choosing to include net capital gain. H and r block 1040ez    Investment income generally does not include net capital gain from disposing of investment property (including capital gain distributions from mutual funds). H and r block 1040ez However, you can choose to include all or part of your net capital gain in investment income. H and r block 1040ez   You make this choice by completing Form 4952, line 4g, according to its instructions. H and r block 1040ez   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. H and r block 1040ez   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. H and r block 1040ez    Before making either choice, consider the overall effect on your tax liability. H and r block 1040ez Compare your tax if you make one or both of these choices with your tax if you do not. H and r block 1040ez Investment income of child reported on parent's return. H and r block 1040ez   Investment income includes the part of your child's interest and dividend income you choose to report on your return. H and r block 1040ez If the child does not have qualified dividends, Alaska Permanent Fund dividends, or capital gain distributions, this is the amount on line 6 of Form 8814. H and r block 1040ez Include it on line 4a of Form 4952. H and r block 1040ez Example. H and r block 1040ez Your 8-year-old son has interest income of $2,200, which you choose to report on your own return. H and r block 1040ez You enter $2,200 on Form 8814, lines 1a and 4, and $200 on lines 6 and 12 and complete Part II. H and r block 1040ez Also enter $200 on Form 1040, line 21. H and r block 1040ez Your investment income includes this $200. H and r block 1040ez Child's qualified dividends. H and r block 1040ez   If part of the amount you report is your child's qualified dividends, that part (which is reported on Form 1040, line 9b) generally does not count as investment income. H and r block 1040ez However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. H and r block 1040ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). H and r block 1040ez Child's Alaska Permanent Fund dividends. H and r block 1040ez   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. H and r block 1040ez To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. H and r block 1040ez Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. H and r block 1040ez Subtract the result from the amount on Form 8814, line 12. H and r block 1040ez Example. H and r block 1040ez Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. H and r block 1040ez You choose to report this on your return. H and r block 1040ez You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. H and r block 1040ez You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. H and r block 1040ez You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. H and r block 1040ez Child's capital gain distributions. H and r block 1040ez   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. H and r block 1040ez However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. H and r block 1040ez   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). H and r block 1040ez Investment expenses. H and r block 1040ez   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. H and r block 1040ez Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. H and r block 1040ez Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. H and r block 1040ez See Expenses of Producing Income , later, for a discussion of the 2% limit. H and r block 1040ez Losses from passive activities. H and r block 1040ez   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). H and r block 1040ez See Publication 925 for information about passive activities. H and r block 1040ez Example. H and r block 1040ez Ted is a partner in a partnership that operates a business. H and r block 1040ez However, he does not materially participate in the partnership's business. H and r block 1040ez Ted's interest in the partnership is considered a passive activity. H and r block 1040ez Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. H and r block 1040ez His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. H and r block 1040ez His investment interest expense is $8,000. H and r block 1040ez Ted also has income from the partnership of $2,000. H and r block 1040ez Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. H and r block 1040ez His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. H and r block 1040ez Form 4952 Use Form 4952 to figure your deduction for investment interest. H and r block 1040ez See Form 4952 for more information. H and r block 1040ez Exception to use of Form 4952. H and r block 1040ez   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. H and r block 1040ez Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. H and r block 1040ez You do not have any other deductible investment expenses. H and r block 1040ez You have no carryover of investment interest expense from 2012. H and r block 1040ez   If you meet all of these tests, you can deduct all of your investment interest. H and r block 1040ez    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. H and r block 1040ez If the bond yields taxable interest, you can choose to amortize the premium. H and r block 1040ez This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. H and r block 1040ez If you make this choice, you must reduce your basis in the bond by the amortization for the year. H and r block 1040ez If the bond yields tax-exempt interest, you must amortize the premium. H and r block 1040ez This amortized amount is not deductible in determining taxable income. H and r block 1040ez However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. H and r block 1040ez Bond premium. H and r block 1040ez   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). H and r block 1040ez For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. H and r block 1040ez Special rules to determine amounts payable on a bond. H and r block 1040ez   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. H and r block 1040ez 171-3. H and r block 1040ez Basis. H and r block 1040ez   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. H and r block 1040ez However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. H and r block 1040ez See Regulations section 1. H and r block 1040ez 171-1(e). H and r block 1040ez Dealers. H and r block 1040ez   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. H and r block 1040ez   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. H and r block 1040ez How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. H and r block 1040ez Constant yield method. H and r block 1040ez   Figure the bond premium amortization for each accrual period as follows. H and r block 1040ez Step 1: Determine your yield. H and r block 1040ez   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. H and r block 1040ez Figure the yield as of the date you got the bond. H and r block 1040ez It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. H and r block 1040ez   If you do not know the yield, consult your broker or tax advisor. H and r block 1040ez Databases available to them are likely to show the yield at the date of purchase. H and r block 1040ez Step 2: Determine the accrual periods. H and r block 1040ez   You can choose the accrual periods to use. H and r block 1040ez They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. H and r block 1040ez The computation is simplest if accrual periods are the same as the intervals between interest payment dates. H and r block 1040ez Step 3: Determine the bond premium for the accrual period. H and r block 1040ez   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. H and r block 1040ez Then subtract the result from the qualified stated interest for the period. H and r block 1040ez   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. H and r block 1040ez After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. H and r block 1040ez Example. H and r block 1040ez On February 1, 2012, you bought a taxable bond for $110,000. H and r block 1040ez The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). H and r block 1040ez The bond pays qualified stated interest of $10,000 on February 1 of each year. H and r block 1040ez Your yield is 8. H and r block 1040ez 07439% compounded annually. H and r block 1040ez You choose to use annual accrual periods ending on February 1 of each year. H and r block 1040ez To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. H and r block 1040ez When you subtract the result ($8,881. H and r block 1040ez 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. H and r block 1040ez 17. H and r block 1040ez Special rules to figure amortization. H and r block 1040ez   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. H and r block 1040ez 171-3. H and r block 1040ez Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. H and r block 1040ez Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. H and r block 1040ez Straight-line method. H and r block 1040ez   Under this method, the amount of your bond premium amortization is the same each month. H and r block 1040ez Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. H and r block 1040ez Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). H and r block 1040ez This gives you your bond premium amortization for the year. H and r block 1040ez Revenue Ruling 82-10 method. H and r block 1040ez   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. H and r block 1040ez This method is explained in Revenue Ruling 82-10, 1982-1 C. H and r block 1040ez B. H and r block 1040ez 46. H and r block 1040ez Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. H and r block 1040ez You should attach a statement to your return that you are making this choice under section 171. H and r block 1040ez See How To Report Amortization, next. H and r block 1040ez This choice is binding for the year you make it and for later tax years. H and r block 1040ez It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. H and r block 1040ez You can change your decision to amortize bond premium only with the written approval of the IRS. H and r block 1040ez To request approval, use Form 3115. H and r block 1040ez For more information on requesting approval, see section 5 of the Appendix to Revenue Procedure 2011-14 in Internal Revenue Bulletin 2011-4. H and r block 1040ez You can find Revenue Procedure 2011-14 at www. H and r block 1040ez irs. H and r block 1040ez gov/irb/2011-04_IRB/ar08. H and r block 1040ez html. H and r block 1040ez How To Report Amortization Subtract the bond premium amortization from your interest income from these bonds. H and r block 1040ez Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. H and r block 1040ez Under your last entry on line 1, put a subtotal of all interest listed on line 1. H and r block 1040ez Below this subtotal, print “ABP Adjustment,” and the total interest you received. H and r block 1040ez Subtract this amount from the subtotal, and enter the result on line 2. H and r block 1040ez Bond premium amortization more than interest. H and r block 1040ez   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. H and r block 1040ez    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. H and r block 1040ez Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. H and r block 1040ez Pre-1998 election to amortize bond premium. H and r block 1040ez   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. H and r block 1040ez Bonds acquired before October 23, 1986. H and r block 1040ez   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. H and r block 1040ez Bonds acquired after October 22, 1986, but before 1988. H and r block 1040ez    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. H and r block 1040ez Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). H and r block 1040ez To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. H and r block 1040ez The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. H and r block 1040ez The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. H and r block 1040ez The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. H and r block 1040ez For information on how to report expenses of producing income, see How To Report Investment Expenses , later. H and r block 1040ez Attorney or accounting fees. H and r block 1040ez   You can deduct attorney or accounting fees that are necessary to produce or collect taxable income. H and r block 1040ez However, in some cases, attorney or accounting fees are part of the basis of property. H and r block 1040ez See Basis of Investment Property in chapter 4. H and r block 1040ez Automatic investment service and dividend reinvestment plans. H and r block 1040ez   A bank may offer its checking account customers an automatic investment service so that, for a charge, each customer can choose to invest a part of the checking account each month in common stock. H and r block 1040ez Or a bank that is a dividend disbursing agent for a number of publicly-owned corporations may set up an automatic dividend reinvestment service. H and r block 1040ez Through that service, cash dividends are reinvested in more shares of stock after the bank deducts a service charge. H and r block 1040ez   A corporation in which you own stock also may have a dividend reinvestment plan. H and r block 1040ez This plan lets you choose to use your dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. H and r block 1040ez   You can deduct the monthly service charge you pay to a bank to participate in an automatic investment service. H and r block 1040ez If you participate in a dividend reinvestment plan, you can deduct any service charge subtracted from your cash dividends before the dividends are used to buy more shares of stock. H and r block 1040ez Deduct the charges in the year you pay them. H and r block 1040ez Clerical help and office rent. H and r block 1040ez   You can deduct office expenses, such as rent and clerical help, you incurred in connection with your investments and collecting the taxable income on your investments. H and r block 1040ez Cost of replacing missing securities. H and r block 1040ez   To replace your taxable securities that are mislaid, lost, stolen, or destroyed, you may have to post an indemnity bond. H and r block 1040ez You can deduct the premium you pay to buy the indemnity bond and the related incidental expenses. H and r block 1040ez   You may, however, get a refund of part of the bond premium if the missing securities are recovered within a specified time. H and r block 1040ez Under certain types of insurance policies, you can recover some of the expenses. H and r block 1040ez   If you receive the refund in the tax year you pay the amounts, you can deduct only the difference between the expenses paid and the amount refunded. H and r block 1040ez If the refund is made in a later tax year, you must include the refund in income in the year you received it, but only to the extent that the expenses decreased your tax in the year you deducted them. H and r block 1040ez Fees to collect income. H and r block 1040ez   You can deduct fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock. H and r block 1040ez Fees to buy or sell. H and r block 1040ez   You cannot deduct a fee you pay to a broker to acquire investment property, such as stocks or bonds. H and r block 1040ez You must add the fee to the cost of the property. H and r block 1040ez See Basis of Investment Property in chapter 4. H and r block 1040ez    You cannot deduct any broker's fees, commissions, or option premiums you pay (or that were netted out) in connection with the sale of investment property. H and r block 1040ez They can be used only to figure gain or loss from the sale. H and r block 1040ez See Reporting Capital Gains and Losses , in chapter 4, for more information about the treatment of these sale expenses. H and r block 1040ez Investment counsel and advice. H and r block 1040ez   You can deduct fees you pay for counsel and advice about investments that produce taxable income. H and r block 1040ez This includes amounts you pay for investment advisory services. H and r block 1040ez Safe deposit box rent. H and r block 1040ez   You can deduct rent you pay for a safe deposit box if you use the box to store taxable income-producing stocks, bonds, or other investment-related papers and documents. H and r block 1040ez If you also use the box to store tax-exempt securities or personal items, you can deduct only part of the rent. H and r block 1040ez See Tax-exempt income under Nondeductible Expenses, later, to figure what part you can deduct. H and r block 1040ez State and local transfer taxes. H and r block 1040ez   You cannot deduct the state and local transfer taxes you pay when you buy or sell securities. H and r block 1040ez If you pay these transfer taxes when you buy securities, you must treat them as part of the cost of the property. H and r block 1040ez If you pay these transfer taxes when you sell securities, you must treat them as a reduction in the amount realized. H and r block 1040ez Trustee's commissions for revocable trust. H and r block 1040ez   If you set up a revocable trust and have its income distributed to you, you can deduct the commission you pay the trustee for managing the trust to the extent it is to produce or collect taxable income or to manage property. H and r block 1040ez However, you cannot deduct any part of the commission used for producing or collecting tax-exempt income or for managing property that produces tax-exempt income. H and r block 1040ez   If you are a cash-basis taxpayer and pay the commissions for several years in advance, you must deduct a part of the commission each year. H and r block 1040ez You cannot deduct the entire amount in the year you pay it. H and r block 1040ez Investment expenses from pass-through entities. H and r block 1040ez   If you hold an interest in a partnership, S corporation, real estate mortgage investment conduit (REMIC), or a nonpublicly offered mutual fund, you can deduct your share of that entity's investment expenses. H and r block 1040ez A partnership or S corporation will show your share of these expenses on your Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S). H and r block 1040ez A nonpublicly offered mutual fund will indicate your share of these expenses in box 5 of Form 1099-DIV (or substitute statement). H and r block 1040ez Publicly-offered mutual funds are discussed later. H and r block 1040ez   If you hold an interest in a REMIC, any expenses relating to your residual interest investment will be shown on Schedule Q (Form 1066), line 3b. H and r block 1040ez Any expenses relating to your regular interest investment will appear in box 5 of Form 1099-INT (or substitute statement) or box 9 of Form 1099-OID (or substitute statement). H and r block 1040ez   Report your share of these investment expenses on Schedule A (Form 1040), subject to the 2% limit, in the same manner as your other investment expenses. H and r block 1040ez Including mutual fund or REMIC expenses in income. H and r block 1040ez   Your share of the investment expenses of a REMIC or a nonpublicly offered mutual fund, as described above, are considered to be indirect deductions through that pass-through entity. H and r block 1040ez You must include in your gross income an amount equal to the expenses allocated to you, whether or not you are able to claim a deduction for those expenses. H and r block 1040ez If you are a shareholder in a nonpublicly offered mutual fund, you must include on your return the full amount of ordinary dividends or other distributions of stock, as shown in box 1a of Form 1099-DIV (or substitute statement). H and r block 1040ez If you are a residual interest holder in a REMIC, you must report as ordinary income on Schedule E (Form 1040) the total amounts shown on Schedule Q (Form 1066), lines 1b and 3b. H and r block 1040ez If you are a REMIC regular interest holder, you must include the amount of any expense allocation you received on Form 1040, line 8a. H and r block 1040ez Publicly-offered mutual funds. H and r block 1040ez   Most mutual funds are publicly offered. H and r block 1040ez These mutual funds, generally, are traded on an established securities exchange. H and r block 1040ez These funds do not pass investment expenses through to you. H and r block 1040ez Instead, the dividend income they report to you in box 1a of Form 1099-DIV (or substitute statement) is already reduced by your share of investment expenses. H and r block 1040ez As a result, you cannot deduct the expenses on your return. H and r block 1040ez   Include the amount from box 1a of Form 1099-DIV (or substitute statement) in your income. H and r block 1040ez    A publicly offered mutual fund is one that: Is continuously offered pursuant to a public offering, Is regularly traded on an established securities market, and Is held by or for no fewer than 500 persons at any time during the year. H and r block 1040ez Contact your mutual fund if you are not sure whether it is publicly offered. H and r block 1040ez Nondeductible Expenses Some expenses that you incur as an investor are not deductible. H and r block 1040ez Stockholders' meetings. H and r block 1040ez   You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. H and r block 1040ez This is true even if your purpose in attending is to get information that would be useful in making further investments. H and r block 1040ez Investment-related seminar. H and r block 1040ez   You cannot deduct expenses for attending a convention, seminar, or similar meeting for investment purposes. H and r block 1040ez Single-premium life insurance, endowment, and annuity contracts. H and r block 1040ez   You cannot deduct interest on money you borrow to buy or carry a single-premium life insurance, endowment, or annuity contract. H and r block 1040ez Used as collateral. H and r block 1040ez   If you use a single premium annuity contract as collateral to obtain or continue a mortgage loan, you cannot deduct any interest on the loan that is collateralized by the annuity contract. H and r block 1040ez Figure the amount of interest expense disallowed by multiplying the current interest rate on the mortgage loan by the lesser of the amount of the annuity contract used as collateral or the amount of the loan. H and r block 1040ez Borrowing on insurance. H and r block 1040ez   Generally, you cannot deduct interest on money you borrow to buy or carry a life insurance, endowment, or annuity contract if you plan to systematically borrow part or all of the increases in the cash value of the contract. H and r block 1040ez This rule applies to the interest on the total amount borrowed to buy or carry the contract, not just the interest on the borrowed increases in the cash value. H and r block 1040ez Tax-exempt income. H and r block 1040ez   You cannot deduct expenses you incur to produce tax-exempt income. H and r block 1040ez Nor can you deduct interest on money you borrow to buy tax-exempt securities or shares in a mutual fund or other regulated investment company that distributes only exempt-interest dividends. H and r block 1040ez Short-sale expenses. H and r block 1040ez   The rule disallowing a deduction for interest expenses on tax-exempt securities applies to amounts you pay in connection with personal property used in a short sale or amounts paid by others for the use of any collateral in connection with the short sale. H and r block 1040ez However, it does not apply to the expenses you incur if you deposit cash as collateral for the property used in the short sale and the cash does not earn a material return during the period of the sale. H and r block 1040ez Short sales are discussed in Short Sales in chapter 4. H and r block 1040ez Expenses for both tax-exempt and taxable income. H and r block 1040ez   You may have expenses that are for both tax-exempt and taxable income. H and r block 1040ez If you cannot specifically identify what part of the expenses is for each type of income, you can divide the expenses, using reasonable proportions based on facts and circumstances. H and r block 1040ez You must attach a statement to your return showing how you divided the expenses and stating that each deduction claimed is not based on tax-exempt income. H and r block 1040ez   One accepted method for dividing expenses is to do it in the same proportion that each type of income is to the total income. H and r block 1040ez If the expenses relate in part to capital gains and losses, include the gains, but not the losses, in figuring this proportion. H and r block 1040ez To find the part of the expenses that is for the tax-exempt income, divide your tax-exempt income by the total income and multiply your expenses by the result. H and r block 1040ez Example. H and r block 1040ez You received $6,000 interest; $4,800 was tax-exempt and $1,200 was taxable. H and r block 1040ez In earning this income, you had $500 of expenses. H and r block 1040ez You cannot specifically identify the amount of each expense item that is for each income item, so you must divide your expenses. H and r block 1040ez 80% ($4,800 tax-exempt interest divided by $6,000 total interest) of your expenses is for the tax-exempt income. H and r block 1040ez You cannot deduct $400 (80% of $500) of the expenses. H and r block 1040ez You can deduct $100 (the rest of the expenses) because they are for the taxable interest. H and r block 1040ez State income taxes. H and r block 1040ez   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. H and r block 1040ez But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. H and r block 1040ez Interest expense and carrying charges on straddles. H and r block 1040ez   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. H and r block 1040ez The nondeductible interest and carrying charges are added to the basis of the straddle property. H and r block 1040ez However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. H and r block 1040ez  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. H and r block 1040ez   Interest includes any amount you pay or incur in connection with personal property used in a short sale. H and r block 1040ez However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. H and r block 1040ez   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). H and r block 1040ez Nondeductible amount. H and r block 1040ez   Figure the nondeductible interest and carrying charges on straddle property as follows. H and r block 1040ez Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. H and r block 1040ez Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. H and r block 1040ez Basis adjustment. H and r block 1040ez   Add the nondeductible amount to the basis of your straddle property. H and r block 1040ez How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). H and r block 1040ez Enter your deductible investment interest expense on Schedule A (Form1040), line 14. H and r block 1040ez Include any deductible short sale expenses. H and r block 1040ez (See Short Sales in chapter 4 for information on these expenses. H and r block 1040ez ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. H and r block 1040ez Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. H and r block 1040ez List the type and amount of each expense on the dotted lines next to line 23. H and r block 1040ez (If necessary, you can show the required information on an attached statement. H and r block 1040ez ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. H and r block 1040ez When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. H and r block 1040ez If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. H and r block 1040ez Also see When To Deduct Investment Interest , earlier in this chapter. H and r block 1040ez Unpaid expenses owed to related party. H and r block 1040ez   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. H and r block 1040ez The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. H and r block 1040ez If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. H and r block 1040ez   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . H and r block 1040ez It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. H and r block 1040ez   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. H and r block 1040ez This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. H and r block 1040ez Prev  Up  Next   Home   More Online Publications
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SOI Tax Stats - Transactions of Foreign-Owned Domestic Corporations

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  • Data are taken from Form 5472 - Information Return of a Foreign Owned Corporation.
  • "Owned" generally indicates that a foreign entity owns 25 percent or more of the U.S. corporation's voting stock.

            Statistical Tables                    SOI Bulletin Articles
 


Statistical Tables

Foreign-Owned Domestic Corporations with Total Receipts of $500 Million or More and with Form 5472 Attached: Transactions Between Corporations and Related Foreign Persons
     Classified by: Industry*
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

 

     Classified by: Country of Residence of Related Foreign Person
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

 

     Classified by: Industry and Country of Residence of Related Foreign Person*
     Tax Years: 2008    2006    2004    2002     2000      1998     1996     1994     1993     1992

*For Study Years prior to 1998, industrial sectors are classified using the Standard Industry Classification (SIC).  Study Years from 1998 to present use the North American Industry Classification (NAICS).

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Page Last Reviewed or Updated: 14-Mar-2014

The H And R Block 1040ez

H and r block 1040ez Publication 502 - Main Content Table of Contents What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. H and r block 1040ez How Much of the Expenses Can You Deduct? Whose Medical Expenses Can You Include?Spouse Dependent Decedent What Medical Expenses Are Includible?Abortion Acupuncture Alcoholism Ambulance Annual Physical Examination Artificial Limb Artificial Teeth Bandages Birth Control Pills Body Scan Braille Books and Magazines Breast Pumps and Supplies Breast Reconstruction Surgery Capital Expenses Car Chiropractor Christian Science Practitioner Contact Lenses Crutches Dental Treatment Diagnostic Devices Disabled Dependent Care Expenses Drug Addiction Drugs Eye Exam Eyeglasses Eye Surgery Fertility Enhancement Founder's Fee Guide Dog or Other Service Animal Health Institute Health Maintenance Organization (HMO) Hearing Aids Home Care Home Improvements Hospital Services Insurance Premiums Intellectually and Developmentally Disabled, Special Home for Laboratory Fees Lactation Expenses Lead-Based Paint Removal Learning Disability Legal Fees Lifetime Care—Advance Payments Lodging Long-Term Care Meals Medical Conferences Medical Information Plan Medicines Nursing Home Nursing Services Operations Optometrist Organ Donors Osteopath Oxygen Physical Examination Pregnancy Test Kit Prosthesis Psychiatric Care Psychoanalysis Psychologist Special Education Sterilization Stop-Smoking Programs Surgery Telephone Television Therapy Transplants Transportation Trips Tuition Vasectomy Vision Correction Surgery Weight-Loss Program Wheelchair Wig X-ray What Expenses Are Not Includible?Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby Controlled Substances Cosmetic Surgery Dancing Lessons Diaper Service Electrolysis or Hair Removal Flexible Spending Account Funeral Expenses Future Medical Care Hair Transplant Health Club Dues Health Coverage Tax Credit Health Savings Accounts Household Help Illegal Operations and Treatments Insurance Premiums Maternity Clothes Medical Savings Account (MSA) Medicines and Drugs From Other Countries Nonprescription Drugs and Medicines Nutritional Supplements Personal Use Items Swimming Lessons Teeth Whitening Veterinary Fees Weight-Loss Program How Do You Treat Reimbursements?Insurance Reimbursement How Do You Figure and Report the Deduction on Your Tax Return?What Tax Form Do You Use? Sale of Medical Equipment or Property Damages for Personal Injuries Impairment-Related Work Expenses Health Insurance Costs for Self-Employed Persons COBRA Premium Assistance Health Coverage Tax CreditWho Can Take This Credit? Qualifying Family Member Qualified Health Insurance Nonqualified Health Insurance Eligible Coverage Month How To Take the Credit How To Get Tax HelpLow Income Taxpayer Clinics What Are Medical Expenses? Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. H and r block 1040ez These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. H and r block 1040ez They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. H and r block 1040ez Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. H and r block 1040ez They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. H and r block 1040ez Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. H and r block 1040ez Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. H and r block 1040ez What Expenses Can You Include This Year? You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. H and r block 1040ez (But see Decedent under Whose Medical Expenses Can You Include, for an exception. H and r block 1040ez ) If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. H and r block 1040ez If you use a “pay-by-phone” or “online” account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. H and r block 1040ez If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. H and r block 1040ez If you did not claim a medical or dental expense that would have been deductible in an earlier year, you can file Form 1040X, Amended U. H and r block 1040ez S. H and r block 1040ez Individual Income Tax Return, for the year in which you overlooked the expense. H and r block 1040ez Do not claim the expense on this year's return. H and r block 1040ez Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. H and r block 1040ez You cannot include medical expenses that were paid by insurance companies or other sources. H and r block 1040ez This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services. H and r block 1040ez Separate returns. H and r block 1040ez   If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. H and r block 1040ez Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise. H and r block 1040ez Community property states. H and r block 1040ez   If you and your spouse live in a community property state and file separate returns or are registered domestic partners in Nevada, Washington, or California, any medical expenses paid out of community funds are divided equally. H and r block 1040ez Generally, each of you should include half the expenses. H and r block 1040ez If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. H and r block 1040ez If you live in a community property state and are not filing a joint return, see Publication 555, Community Property. H and r block 1040ez How Much of the Expenses Can You Deduct? Generally, you can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 10% of your AGI. H and r block 1040ez But if either you or your spouse was born before January 2, 1949, you can deduct the amount of your medical and dental expenses that is more than 7. H and r block 1040ez 5% of your AGI. H and r block 1040ez Example. H and r block 1040ez You are unmarried and were born after January 2, 1949, and your AGI is $40,000, 10% of which is $4,000. H and r block 1040ez You paid medical expenses of $2,500. H and r block 1040ez You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. H and r block 1040ez Whose Medical Expenses Can You Include? You can generally include medical expenses you pay for yourself, as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them. H and r block 1040ez There are different rules for decedents and for individuals who are the subject of multiple support agreements. H and r block 1040ez See Support claimed under a multiple support agreement , later under Qualifying Relative. H and r block 1040ez Spouse You can include medical expenses you paid for your spouse. H and r block 1040ez To include these expenses, you must have been married either at the time your spouse received the medical services or at the time you paid the medical expenses. H and r block 1040ez Example 1. H and r block 1040ez Mary received medical treatment before she married Bill. H and r block 1040ez Bill paid for the treatment after they married. H and r block 1040ez Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. H and r block 1040ez If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. H and r block 1040ez Mary would include the amounts she paid during the year in her separate return. H and r block 1040ez If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. H and r block 1040ez Example 2. H and r block 1040ez This year, John paid medical expenses for his wife Louise, who died last year. H and r block 1040ez John married Belle this year and they file a joint return. H and r block 1040ez Because John was married to Louise when she received the medical services, he can include those expenses in figuring his medical expense deduction for this year. H and r block 1040ez Dependent You can include medical expenses you paid for your dependent. H and r block 1040ez For you to include these expenses, the person must have been your dependent either at the time the medical services were provided or at the time you paid the expenses. H and r block 1040ez A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. H and r block 1040ez The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. H and r block 1040ez S. H and r block 1040ez citizen or national or a resident of the United States, Canada, or Mexico. H and r block 1040ez If your qualifying child was adopted, see Exception for adopted child , later. H and r block 1040ez You can include medical expenses you paid for an individual that would have been your dependent except that: He or she received gross income of $3,900 or more in 2013, He or she filed a joint return for 2013, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. H and r block 1040ez Exception for adopted child. H and r block 1040ez   If you are a U. H and r block 1040ez S. H and r block 1040ez citizen or national and your adopted child lived with you as a member of your household for 2013, that child does not have to be a U. H and r block 1040ez S. H and r block 1040ez citizen or national, or a resident of the United States, Canada, or Mexico. H and r block 1040ez Qualifying Child A qualifying child is a child who: Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half sister, or a descendant of any of them (for example, your grandchild, niece, or nephew), Was: Under age 19 at the end of 2013 and younger than you (or your spouse, if filing jointly), Under age 24 at the end of 2013, a full-time student, and younger than you (or your spouse, if filing jointly), or Any age and permanently and totally disabled, Lived with you for more than half of 2013, Did not provide over half of his or her own support for 2013, and Did not file a joint return, other than to claim a refund. H and r block 1040ez Adopted child. H and r block 1040ez   A legally adopted child is treated as your own child. H and r block 1040ez This child includes a child lawfully placed with you for legal adoption. H and r block 1040ez   You can include medical expenses that you paid for a child before adoption if the child qualified as your dependent when the medical services were provided or when the expenses were paid. H and r block 1040ez   If you pay back an adoption agency or other persons for medical expenses they paid under an agreement with you, you are treated as having paid those expenses provided you clearly substantiate that the payment is directly attributable to the medical care of the child. H and r block 1040ez   But if you pay the agency or other person for medical care that was provided and paid for before adoption negotiations began, you cannot include them as medical expenses. H and r block 1040ez    You may be able to take a credit for other expenses related to an adoption. H and r block 1040ez See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. H and r block 1040ez Child of divorced or separated parents. H and r block 1040ez   For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. H and r block 1040ez Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child's dependency exemption, if: The child is in the custody of one or both parents for more than half the year, The child receives over half of his or her support during the year from his or her parents, and The child's parents: Are divorced or legally separated under a decree of divorce or separate maintenance, Are separated under a written separation agreement, or Live apart at all times during the last 6 months of the year. H and r block 1040ez This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). H and r block 1040ez Qualifying Relative A qualifying relative is a person: Who is your: Son, daughter, stepchild, or foster child, or a descendant of any of them (for example, your grandchild), Brother, sister, half brother, half sister, or a son or daughter of any of them, Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle), Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law, Who was not a qualifying child (see Qualifying Child, earlier) of any taxpayer for 2013, and For whom you provided over half of the support in 2013. H and r block 1040ez But see Child of divorced or separated parents , earlier, Support claimed under a multiple support agreement, next, and Kidnapped child under Qualifying Relative in Publication 501. H and r block 1040ez Support claimed under a multiple support agreement. H and r block 1040ez   If you are considered to have provided more than half of a qualifying relative's support under a multiple support agreement, you can include medical expenses you pay for that person. H and r block 1040ez A multiple support agreement is used when two or more people provide more than half of a person's support, but no one alone provides more than half. H and r block 1040ez   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. H and r block 1040ez However, you can include the entire unreimbursed amount you paid for medical expenses. H and r block 1040ez Example. H and r block 1040ez You and your three brothers each provide one-fourth of your mother's total support. H and r block 1040ez Under a multiple support agreement, you treat your mother as your dependent. H and r block 1040ez You paid all of her medical expenses. H and r block 1040ez Your brothers repaid you for three-fourths of these expenses. H and r block 1040ez In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. H and r block 1040ez Your brothers cannot include any part of the expenses. H and r block 1040ez However, if you and your brothers share the nonmedical support items and you separately pay all of your mother's medical expenses, you can include the unreimbursed amount you paid for her medical expenses in your medical expenses. H and r block 1040ez Decedent Medical expenses paid before death by the decedent are included in figuring any deduction for medical and dental expenses on the decedent's final income tax return. H and r block 1040ez This includes expenses for the decedent's spouse and dependents as well as for the decedent. H and r block 1040ez The survivor or personal representative of a decedent can choose to treat certain expenses paid by the decedent's estate for the decedent's medical care as paid by the decedent at the time the medical services were provided. H and r block 1040ez The expenses must be paid within the 1-year period beginning with the day after the date of death. H and r block 1040ez If you are the survivor or personal representative making this choice, you must attach a statement to the decedent's Form 1040 (or the decedent's amended return, Form 1040X) saying that the expenses have not been and will not be claimed on the estate tax return. H and r block 1040ez Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from any Archer MSA, Medicare Advantage MSA, or health savings account. H and r block 1040ez What if the decedent's return had been filed and the medical expenses were not included?   Form 1040X can be filed for the year or years the expenses are treated as paid, unless the period for filing an amended return for that year has passed. H and r block 1040ez Generally, an amended return must be filed within 3 years of the date the original return was filed, or within 2 years from the time the tax was paid, whichever date is later. H and r block 1040ez Example. H and r block 1040ez John properly filed his 2012 income tax return. H and r block 1040ez He died in 2013 with unpaid medical expenses of $1,500 from 2012 and $1,800 in 2013. H and r block 1040ez If the expenses are paid within the 1-year period, his survivor or personal representative can file an amended return for 2012 claiming a deduction based on the $1,500 medical expenses. H and r block 1040ez The $1,800 of medical expenses from 2013 can be included on the decedent's final return for 2013. H and r block 1040ez What if you pay medical expenses of a deceased spouse or dependent?   If you paid medical expenses for your deceased spouse or dependent, include them as medical expenses on your Form 1040 in the year paid, whether they are paid before or after the decedent's death. H and r block 1040ez The expenses can be included if the person was your spouse or dependent either at the time the medical services were provided or at the time you paid the expenses. H and r block 1040ez What Medical Expenses Are Includible? Following is a list of items that you can include in figuring your medical expense deduction. H and r block 1040ez The items are listed in alphabetical order. H and r block 1040ez This list does not include all possible medical expenses. H and r block 1040ez To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. H and r block 1040ez Abortion You can include in medical expenses the amount you pay for a legal abortion. H and r block 1040ez Acupuncture You can include in medical expenses the amount you pay for acupuncture. H and r block 1040ez Alcoholism You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol addiction. H and r block 1040ez This includes meals and lodging provided by the center during treatment. H and r block 1040ez You can also include in medical expenses amounts you pay for transportation to and from Alcoholics Anonymous meetings in your community if the attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcoholic liquors. H and r block 1040ez Ambulance You can include in medical expenses amounts you pay for ambulance service. H and r block 1040ez Annual Physical Examination See Physical Examination , later. H and r block 1040ez Artificial Limb You can include in medical expenses the amount you pay for an artificial limb. H and r block 1040ez Artificial Teeth You can include in medical expenses the amount you pay for artificial teeth. H and r block 1040ez Bandages You can include in medical expenses the cost of medical supplies such as bandages. H and r block 1040ez Birth Control Pills You can include in medical expenses the amount you pay for birth control pills prescribed by a doctor. H and r block 1040ez Body Scan You can include in medical expenses the cost of an electronic body scan. H and r block 1040ez Braille Books and Magazines You can include in medical expenses the part of the cost of Braille books and magazines for use by a visually impaired person that is more than the cost of regular printed editions. H and r block 1040ez Breast Pumps and Supplies You can include in medical expenses the cost of breast pumps and supplies that assist lactation. H and r block 1040ez Breast Reconstruction Surgery You can include in medical expenses the amounts you pay for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy for cancer. H and r block 1040ez See Cosmetic Surgery , later. H and r block 1040ez Capital Expenses You can include in medical expenses amounts you pay for special equipment installed in a home, or for improvements, if their main purpose is medical care for you, your spouse, or your dependent. H and r block 1040ez The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. H and r block 1040ez The cost of the improvement is reduced by the increase in the value of your property. H and r block 1040ez The difference is a medical expense. H and r block 1040ez If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. H and r block 1040ez Certain improvements made to accommodate a home to your disabled condition, or that of your spouse or your dependents who live with you, do not usually increase the value of the home and the cost can be included in full as medical expenses. H and r block 1040ez These improvements include, but are not limited to, the following items. H and r block 1040ez Constructing entrance or exit ramps for your home. H and r block 1040ez Widening doorways at entrances or exits to your home. H and r block 1040ez Widening or otherwise modifying hallways and interior doorways. H and r block 1040ez Installing railings, support bars, or other modifications to bathrooms. H and r block 1040ez Lowering or modifying kitchen cabinets and equipment. H and r block 1040ez Moving or modifying electrical outlets and fixtures. H and r block 1040ez Installing porch lifts and other forms of lifts (but elevators generally add value to the house). H and r block 1040ez Modifying fire alarms, smoke detectors, and other warning systems. H and r block 1040ez Modifying stairways. H and r block 1040ez Adding handrails or grab bars anywhere (whether or not in bathrooms). H and r block 1040ez Modifying hardware on doors. H and r block 1040ez Modifying areas in front of entrance and exit doorways. H and r block 1040ez Grading the ground to provide access to the residence. H and r block 1040ez Only reasonable costs to accommodate a home to a disabled condition are considered medical care. H and r block 1040ez Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. H and r block 1040ez Capital expense worksheet. H and r block 1040ez   Use Worksheet A to figure the amount of your capital expense to include in your medical expenses. H and r block 1040ez Worksheet A. H and r block 1040ez Capital Expense Worksheet Instructions: Use this worksheet to figure the amount, if any, of your medical expenses due to a home improvement. H and r block 1040ez 1. H and r block 1040ez Enter the amount you paid for the home improvement 1. H and r block 1040ez   2. H and r block 1040ez Enter the value of your home immediately after the improvement 2. H and r block 1040ez       3. H and r block 1040ez Enter the value of your home immediately before the improvement 3. H and r block 1040ez       4. H and r block 1040ez Subtract line 3 from line 2. H and r block 1040ez This is the increase in the value of your home due to the improvement 4. H and r block 1040ez     • If line 4 is more than or equal to line 1, you have no medical expenses due to the home improvement; stop here. H and r block 1040ez       • If line 4 is less than line 1, go to line 5. H and r block 1040ez     5. H and r block 1040ez Subtract line 4 from line 1. H and r block 1040ez These are your medical expenses due to the home improvement 5. H and r block 1040ez   Operation and upkeep. H and r block 1040ez   Amounts you pay for operation and upkeep of a capital asset qualify as medical expenses, as long as the main reason for them is medical care. H and r block 1040ez This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense. H and r block 1040ez Improvements to property rented by a person with a disability. H and r block 1040ez   Amounts paid to buy and install special plumbing fixtures for a person with a disability, mainly for medical reasons, in a rented house are medical expenses. H and r block 1040ez Example. H and r block 1040ez John has arthritis and a heart condition. H and r block 1040ez He cannot climb stairs or get into a bathtub. H and r block 1040ez On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. H and r block 1040ez The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. H and r block 1040ez John can include in medical expenses the entire amount he paid. H and r block 1040ez Car You can include in medical expenses the cost of special hand controls and other special equipment installed in a car for the use of a person with a disability. H and r block 1040ez Special design. H and r block 1040ez   You can include in medical expenses the difference between the cost of a regular car and a car specially designed to hold a wheelchair. H and r block 1040ez Cost of operation. H and r block 1040ez   The includible costs of using a car for medical reasons are explained under Transportation , later. H and r block 1040ez Chiropractor You can include in medical expenses fees you pay to a chiropractor for medical care. H and r block 1040ez Christian Science Practitioner You can include in medical expenses fees you pay to Christian Science practitioners for medical care. H and r block 1040ez Contact Lenses You can include in medical expenses amounts you pay for contact lenses needed for medical reasons. H and r block 1040ez You can also include the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. H and r block 1040ez See Eyeglasses and Eye Surgery , later. H and r block 1040ez Crutches You can include in medical expenses the amount you pay to buy or rent crutches. H and r block 1040ez Dental Treatment You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. H and r block 1040ez Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. H and r block 1040ez Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments. H and r block 1040ez But see Teeth Whitening under What Expenses Are Not Includible, later. H and r block 1040ez Diagnostic Devices You can include in medical expenses the cost of devices used in diagnosing and treating illness and disease. H and r block 1040ez Example. H and r block 1040ez You have diabetes and use a blood sugar test kit to monitor your blood sugar level. H and r block 1040ez You can include the cost of the blood sugar test kit in your medical expenses. H and r block 1040ez Disabled Dependent Care Expenses Some disabled dependent care expenses may qualify as either: Medical expenses, or Work-related expenses for purposes of taking a credit for dependent care. H and r block 1040ez (See Publication 503, Child and Dependent Care Expenses. H and r block 1040ez ) You can choose to apply them either way as long as you do not use the same expenses to claim both a credit and a medical expense deduction. H and r block 1040ez Drug Addiction You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for drug addiction. H and r block 1040ez This includes meals and lodging at the center during treatment. H and r block 1040ez Drugs See Medicines , later. H and r block 1040ez Eye Exam You can include in medical expenses the amount you pay for eye examinations. H and r block 1040ez Eyeglasses You can include in medical expenses amounts you pay for eyeglasses and contact lenses needed for medical reasons. H and r block 1040ez See Contact Lenses , earlier, for more information. H and r block 1040ez Eye Surgery You can include in medical expenses the amount you pay for eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy. H and r block 1040ez Fertility Enhancement You can include in medical expenses the cost of the following procedures to overcome an inability to have children. H and r block 1040ez Procedures such as in vitro fertilization (including temporary storage of eggs or sperm). H and r block 1040ez Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children. H and r block 1040ez Founder's Fee See Lifetime Care—Advance Payments , later. H and r block 1040ez Guide Dog or Other Service Animal You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. H and r block 1040ez In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties. H and r block 1040ez Health Institute You can include in medical expenses fees you pay for treatment at a health institute only if the treatment is prescribed by a physician and the physician issues a statement that the treatment is necessary to alleviate a physical or mental defect or illness of the individual receiving the treatment. H and r block 1040ez Health Maintenance Organization (HMO) You can include in medical expenses amounts you pay to entitle you, your spouse, or a dependent to receive medical care from an HMO. H and r block 1040ez These amounts are treated as medical insurance premiums. H and r block 1040ez See Insurance Premiums , later. H and r block 1040ez Hearing Aids You can include in medical expenses the cost of a hearing aid and batteries, repairs, and maintenance needed to operate it. H and r block 1040ez Home Care See Nursing Services , later. H and r block 1040ez Home Improvements See Capital Expenses , earlier. H and r block 1040ez Hospital Services You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. H and r block 1040ez This includes amounts paid for meals and lodging. H and r block 1040ez Also see Lodging , later. H and r block 1040ez Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. H and r block 1040ez Medical care policies can provide payment for treatment that includes: Hospitalization, surgical services, X-rays, Prescription drugs and insulin, Dental care, Replacement of lost or damaged contact lenses, and Long-term care (subject to additional limitations). H and r block 1040ez See Qualified Long-Term Care Insurance Contracts under Long-Term Care, later. H and r block 1040ez If you have a policy that provides payments for other than medical care, you can include the premiums for the medical care part of the policy if the charge for the medical part is reasonable. H and r block 1040ez The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. H and r block 1040ez Health coverage tax credit. H and r block 1040ez   If, during 2013, you were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient, you must complete Form 8885 before completing Schedule A. H and r block 1040ez When figuring the amount of insurance premiums you can deduct on Schedule A, do not include: Any amounts you included on Form 8885, Any qualified health insurance premiums you paid to “U. H and r block 1040ez S. H and r block 1040ez Treasury–HCTC,” or Any health coverage tax credit advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. H and r block 1040ez Employer-Sponsored Health Insurance Plan Do not include in your medical and dental expenses any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included on your Form W-2, Wage and Tax Statement. H and r block 1040ez Also, do not include any other medical and dental expenses paid by the plan unless the amount paid is included on your Form W-2. H and r block 1040ez Example. H and r block 1040ez You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. H and r block 1040ez Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. H and r block 1040ez Because you are an employee whose insurance premiums are paid with money that is never included in your gross income, you cannot deduct the premiums paid with that money. H and r block 1040ez Long-term care services. H and r block 1040ez   Contributions made by your employer to provide coverage for qualified long-term care services under a flexible spending or similar arrangement must be included in your income. H and r block 1040ez This amount will be reported as wages on your Form W-2. H and r block 1040ez Retired public safety officers. H and r block 1040ez   If you are a retired public safety officer, do not include as medical expenses any health or long-term care insurance premiums that you elected to have paid with tax-free distributions from a retirement plan. H and r block 1040ez This applies only to distributions that would otherwise be included in income. H and r block 1040ez Health reimbursement arrangement (HRA). H and r block 1040ez   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. H and r block 1040ez This is because an HRA is funded solely by the employer. H and r block 1040ez Medicare A If you are covered under social security (or if you are a government employee who paid Medicare tax), you are enrolled in Medicare A. H and r block 1040ez The payroll tax paid for Medicare A is not a medical expense. H and r block 1040ez If you are not covered under social security (or were not a government employee who paid Medicare tax), you can voluntarily enroll in Medicare A. H and r block 1040ez In this situation you can include the premiums you paid for Medicare A as a medical expense. H and r block 1040ez Medicare B Medicare B is a supplemental medical insurance. H and r block 1040ez Premiums you pay for Medicare B are a medical expense. H and r block 1040ez Check the information you received from the Social Security Administration to find out your premium. H and r block 1040ez Medicare D Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. H and r block 1040ez You can include as a medical expense premiums you pay for Medicare D. H and r block 1040ez Prepaid Insurance Premiums Premiums you pay before you are age 65 for insurance for medical care for yourself, your spouse, or your dependents after you reach age 65 are medical care expenses in the year paid if they are: Payable in equal yearly installments or more often, and Payable for at least 10 years, or until you reach age 65 (but not for less than 5 years). H and r block 1040ez Unused Sick Leave Used To Pay Premiums You must include in gross income cash payments you receive at the time of retirement for unused sick leave. H and r block 1040ez You also must include in gross income the value of unused sick leave that, at your option, your employer applies to the cost of your continuing participation in your employer's health plan after you retire. H and r block 1040ez You can include this cost of continuing participation in the health plan as a medical expense. H and r block 1040ez If you participate in a health plan where your employer automatically applies the value of unused sick leave to the cost of your continuing participation in the health plan (and you do not have the option to receive cash), do not include the value of the unused sick leave in gross income. H and r block 1040ez You cannot include this cost of continuing participation in that health plan as a medical expense. H and r block 1040ez Insurance Premiums You Cannot Include You cannot include premiums you pay for: Life insurance policies, Policies providing payment for loss of earnings, Policies for loss of life, limb, sight, etc. H and r block 1040ez , Policies that pay you a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury, The part of your car insurance that provides medical insurance coverage for all persons injured in or by your car because the part of the premium providing insurance for you, your spouse, and your dependents is not stated separately from the part of the premium providing insurance for medical care for others, or Health or long-term care insurance if you elected to pay these premiums with tax-free distributions from a retirement plan made directly to the insurance provider and these distributions would otherwise have been included in income. H and r block 1040ez Taxes imposed by any governmental unit, such as Medicare taxes, are not insurance premiums. H and r block 1040ez Coverage for nondependents. H and r block 1040ez   Generally, you cannot deduct any additional premium you pay as the result of including on your policy someone who is not your spouse or dependent, even if that person is your child under age 27. H and r block 1040ez However, you can deduct the additional premium if that person is: Your child whom you do not claim as a dependent because of the rules for children of divorced or separated parents, Any person you could have claimed as a dependent on your return except that person received $3,900 or more of gross income or filed a joint return, or Any person you could have claimed as a dependent except that you, or your spouse if filing jointly, can be claimed as a dependent on someone else's 2013 return. H and r block 1040ez  Also, if you had family coverage when you added this individual to your policy and your premiums did not increase, you can enter on Schedule A (Form 1040) the full amount of your medical and dental insurance premiums. H and r block 1040ez Intellectually and Developmentally Disabled, Special Home for You can include in medical expenses the cost of keeping a person who is intellectually and developmentally disabled in a special home, not the home of a relative, on the recommendation of a psychiatrist to help the person adjust from life in a mental hospital to community living. H and r block 1040ez Laboratory Fees You can include in medical expenses the amounts you pay for laboratory fees that are part of medical care. H and r block 1040ez Lactation Expenses See Breast Pumps and Supplies , earlier. H and r block 1040ez Lead-Based Paint Removal You can include in medical expenses the cost of removing lead-based paints from surfaces in your home to prevent a child who has or had lead poisoning from eating the paint. H and r block 1040ez These surfaces must be in poor repair (peeling or cracking) or within the child's reach. H and r block 1040ez The cost of repainting the scraped area is not a medical expense. H and r block 1040ez If, instead of removing the paint, you cover the area with wallboard or paneling, treat these items as capital expenses. H and r block 1040ez See Capital Expenses , earlier. H and r block 1040ez Do not include the cost of painting the wallboard as a medical expense. H and r block 1040ez Learning Disability See Special Education , later. H and r block 1040ez Legal Fees You can include in medical expenses legal fees you paid that are necessary to authorize treatment for mental illness. H and r block 1040ez However, you cannot include in medical expenses fees for the management of a guardianship estate, fees for conducting the affairs of the person being treated, or other fees that are not necessary for medical care. H and r block 1040ez Lifetime Care—Advance Payments You can include in medical expenses a part of a life-care fee or “founder's fee” you pay either monthly or as a lump sum under an agreement with a retirement home. H and r block 1040ez The part of the payment you include is the amount properly allocable to medical care. H and r block 1040ez The agreement must require that you pay a specific fee as a condition for the home's promise to provide lifetime care that includes medical care. H and r block 1040ez You can use a statement from the retirement home to prove the amount properly allocable to medical care. H and r block 1040ez The statement must be based either on the home's prior experience or on information from a comparable home. H and r block 1040ez Dependents with disabilities. H and r block 1040ez   You can include in medical expenses advance payments to a private institution for lifetime care, treatment, and training of your physically or mentally impaired child upon your death or when you become unable to provide care. H and r block 1040ez The payments must be a condition for the institution's future acceptance of your child and must not be refundable. H and r block 1040ez Payments for future medical care. H and r block 1040ez   Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. H and r block 1040ez This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care of the type described earlier. H and r block 1040ez Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. H and r block 1040ez See Nursing Home , later. H and r block 1040ez You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. H and r block 1040ez You can include the cost of such lodging while away from home if all of the following requirements are met. H and r block 1040ez The lodging is primarily for and essential to medical care. H and r block 1040ez The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. H and r block 1040ez The lodging is not lavish or extravagant under the circumstances. H and r block 1040ez There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. H and r block 1040ez The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. H and r block 1040ez You can include lodging for a person traveling with the person receiving the medical care. H and r block 1040ez For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. H and r block 1040ez Meals are not included. H and r block 1040ez Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received. H and r block 1040ez Long-Term Care You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. H and r block 1040ez Qualified Long-Term Care Services Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are: Required by a chronically ill individual, and Provided pursuant to a plan of care prescribed by a licensed health care practitioner. H and r block 1040ez Chronically ill individual. H and r block 1040ez   An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions. H and r block 1040ez He or she is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. H and r block 1040ez Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. H and r block 1040ez He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. H and r block 1040ez Maintenance and personal care services. H and r block 1040ez    Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with his or her disabilities (including protection from threats to health and safety due to severe cognitive impairment). H and r block 1040ez Qualified Long-Term Care Insurance Contracts A qualified long-term care insurance contract is an insurance contract that provides only coverage of qualified long-term care services. H and r block 1040ez The contract must: Be guaranteed renewable, Not provide for a cash surrender value or other money that can be paid, assigned, pledged, or borrowed, Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits, and Generally not pay or reimburse expenses incurred for services or items that would be reimbursed under Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to expenses. H and r block 1040ez The amount of qualified long-term care premiums you can include is limited. H and r block 1040ez You can include the following as medical expenses on Schedule A (Form 1040). H and r block 1040ez Qualified long-term care premiums up to the following amounts. H and r block 1040ez Age 40 or under – $360. H and r block 1040ez Age 41 to 50 – $680. H and r block 1040ez Age 51 to 60 – $1,360. H and r block 1040ez Age 61 to 70 – $3,640. H and r block 1040ez Age 71 or over – $4,550. H and r block 1040ez Unreimbursed expenses for qualified long-term care services. H and r block 1040ez Note. H and r block 1040ez The limit on premiums is for each person. H and r block 1040ez Also, if you are an eligible retired public safety officer, you cannot include premiums for long-term care insurance if you elected to pay these premiums with tax-free distributions from a qualified retirement plan made directly to the insurance provider and these distributions would otherwise have been included in your income. H and r block 1040ez Meals You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. H and r block 1040ez You cannot include in medical expenses the cost of meals that are not part of inpatient care. H and r block 1040ez Also see Weight-Loss Program and Nutritional Supplements , later. H and r block 1040ez Medical Conferences You can include in medical expenses amounts paid for admission and transportation to a medical conference if the medical conference concerns the chronic illness of yourself, your spouse, or your dependent. H and r block 1040ez The costs of the medical conference must be primarily for and necessary to the medical care of you, your spouse, or your dependent. H and r block 1040ez The majority of the time spent at the conference must be spent attending sessions on medical information. H and r block 1040ez The cost of meals and lodging while attending the conference is not deductible as a medical expense. H and r block 1040ez Medical Information Plan You can include in medical expenses amounts paid to a plan that keeps medical information in a computer data bank and retrieves and furnishes the information upon request to an attending physician. H and r block 1040ez Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. H and r block 1040ez A prescribed drug is one that requires a prescription by a doctor for its use by an individual. H and r block 1040ez You can also include amounts you pay for insulin. H and r block 1040ez Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. H and r block 1040ez Imported medicines and drugs. H and r block 1040ez   If you imported medicines or drugs from other countries, see Medicines and Drugs From Other Countries , under What Expenses Are Not Includible, later. H and r block 1040ez Nursing Home You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. H and r block 1040ez This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. H and r block 1040ez Do not include the cost of meals and lodging if the reason for being in the home is personal. H and r block 1040ez You can, however, include in medical expenses the part of the cost that is for medical or nursing care. H and r block 1040ez Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. H and r block 1040ez The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. H and r block 1040ez This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. H and r block 1040ez These services can be provided in your home or another care facility. H and r block 1040ez Generally, only the amount spent for nursing services is a medical expense. H and r block 1040ez If the attendant also provides personal and household services, amounts paid to the attendant must be divided between the time spent performing household and personal services and the time spent for nursing services. H and r block 1040ez For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. H and r block 1040ez She spends 10% of her time doing household services such as washing dishes and laundry. H and r block 1040ez You can include only $270 per week as medical expenses. H and r block 1040ez The $30 (10% × $300) allocated to household services cannot be included. H and r block 1040ez However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. H and r block 1040ez See Maintenance and personal care services under Long-Term Care, earlier. H and r block 1040ez Additionally, certain expenses for household services or for the care of a qualifying individual incurred to allow you to work may qualify for the child and dependent care credit. H and r block 1040ez See Publication 503. H and r block 1040ez You can also include in medical expenses part of the amount you pay for that attendant's meals. H and r block 1040ez Divide the food expense among the household members to find the cost of the attendant's food. H and r block 1040ez Then divide that cost in the same manner as in the preceding paragraph. H and r block 1040ez If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. H and r block 1040ez This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. H and r block 1040ez Employment taxes. H and r block 1040ez   You can include as a medical expense social security tax, FUTA, Medicare tax, and state employment taxes you pay for an attendant who provides medical care. H and r block 1040ez If the attendant also provides personal and household services, you can include as a medical expense only the amount of employment taxes paid for medical services as explained earlier. H and r block 1040ez For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. H and r block 1040ez Operations You can include in medical expenses amounts you pay for legal operations that are not for unnecessary cosmetic surgery. H and r block 1040ez See Cosmetic Surgery under What Expenses Are Not Includible, later. H and r block 1040ez Optometrist See Eyeglasses , earlier. H and r block 1040ez Organ Donors See Transplants , later. H and r block 1040ez Osteopath You can include in medical expenses amounts you pay to an osteopath for medical care. H and r block 1040ez Oxygen You can include in medical expenses amounts you pay for oxygen and oxygen equipment to relieve breathing problems caused by a medical condition. H and r block 1040ez Physical Examination You can include in medical expenses the amount you pay for an annual physical examination and diagnostic tests by a physician. H and r block 1040ez You do not have to be ill at the time of the examination. H and r block 1040ez Pregnancy Test Kit You can include in medical expenses the amount you pay to purchase a pregnancy test kit to determine if you are pregnant. H and r block 1040ez Prosthesis See Artificial Limb and Breast Reconstruction Surgery , earlier. H and r block 1040ez Psychiatric Care You can include in medical expenses amounts you pay for psychiatric care. H and r block 1040ez This includes the cost of supporting a mentally ill dependent at a specially equipped medical center where the dependent receives medical care. H and r block 1040ez See Psychoanalysis, next, and Transportation , later. H and r block 1040ez Psychoanalysis You can include in medical expenses payments for psychoanalysis. H and r block 1040ez However, you cannot include payments for psychoanalysis that is part of required training to be a psychoanalyst. H and r block 1040ez Psychologist You can include in medical expenses amounts you pay to a psychologist for medical care. H and r block 1040ez Special Education You can include in medical expenses fees you pay on a doctor's recommendation for a child's tutoring by a teacher who is specially trained and qualified to work with children who have learning disabilities caused by mental or physical impairments, including nervous system disorders. H and r block 1040ez You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. H and r block 1040ez A doctor must recommend that the child attend the school. H and r block 1040ez Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. H and r block 1040ez Special education includes: Teaching Braille to a visually impaired person, Teaching lip reading to a hearing disabled person, or Giving remedial language training to correct a condition caused by a birth defect. H and r block 1040ez Sterilization You can include in medical expenses the cost of a legal sterilization (a legally performed operation to make a person unable to have children). H and r block 1040ez Also see Vasectomy , later. H and r block 1040ez Stop-Smoking Programs You can include in medical expenses amounts you pay for a program to stop smoking. H and r block 1040ez However, you cannot include in medical expenses amounts you pay for drugs that do not require a prescription, such as nicotine gum or patches, that are designed to help stop smoking. H and r block 1040ez Surgery See Operations , earlier. H and r block 1040ez Telephone You can include in medical expenses the cost of special telephone equipment that lets a person who is deaf, hard of hearing or has a speech disability communicate over a regular telephone. H and r block 1040ez This includes teletypewriter (TTY) and telecommunications device for the deaf (TDD) equipment. H and r block 1040ez You can also include the cost of repairing the equipment. H and r block 1040ez Television You can include in medical expenses the cost of equipment that displays the audio part of television programs as subtitles for persons with a hearing disability. H and r block 1040ez This may be the cost of an adapter that attaches to a regular set. H and r block 1040ez It also may be the part of the cost of a specially equipped television that exceeds the cost of the same model regular television set. H and r block 1040ez Therapy You can include in medical expenses amounts you pay for therapy received as medical treatment. H and r block 1040ez Transplants You can include in medical expenses amounts paid for medical care you receive because you are a donor or a possible donor of a kidney or other organ. H and r block 1040ez This includes transportation. H and r block 1040ez You can include any expenses you pay for the medical care of a donor in connection with the donating of an organ. H and r block 1040ez This includes transportation. H and r block 1040ez Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. H and r block 1040ez You can include:    Bus, taxi, train, or plane fares or ambulance service, Transportation expenses of a parent who must go with a child who needs medical care, Transportation expenses of a nurse or other person who can give injections, medications, or other treatment required by a patient who is traveling to get medical care and is unable to travel alone, and Transportation expenses for regular visits to see a mentally ill dependent, if these visits are recommended as a part of treatment. H and r block 1040ez Car expenses. H and r block 1040ez   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. H and r block 1040ez You cannot include depreciation, insurance, general repair, or maintenance expenses. H and r block 1040ez   If you do not want to use your actual expenses for 2013, you can use the standard medical mileage rate of 24 cents a mile. H and r block 1040ez    You can also include parking fees and tolls. H and r block 1040ez You can add these fees and tolls to your medical expenses whether you use actual expenses or the standard mileage rate. H and r block 1040ez Example. H and r block 1040ez In 2013, Bill Jones drove 2,800 miles for medical reasons. H and r block 1040ez He spent $500 for gas, $30 for oil, and $100 for tolls and parking. H and r block 1040ez He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. H and r block 1040ez He figures the actual expenses first. H and r block 1040ez He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. H and r block 1040ez He then figures the standard mileage amount. H and r block 1040ez He multiplies 2,800 miles by 24 cents a mile for a total of $672. H and r block 1040ez He then adds the $100 tolls and parking for a total of $772. H and r block 1040ez Bill includes the $772 of car expenses with his other medical expenses for the year because the $772 is more than the $630 he figured using actual expenses. H and r block 1040ez Transportation expenses you cannot include. H and r block 1040ez    You cannot include in medical expenses the cost of transportation in the following situations. H and r block 1040ez Going to and from work, even if your condition requires an unusual means of transportation. H and r block 1040ez Travel for purely personal reasons to another city for an operation or other medical care. H and r block 1040ez Travel that is merely for the general improvement of one's health. H and r block 1040ez The costs of operating a specially equipped car for other than medical reasons. H and r block 1040ez Trips You can include in medical expenses amounts you pay for transportation to another city if the trip is primarily for, and essential to, receiving medical services. H and r block 1040ez You may be able to include up to $50 for each night for each person. H and r block 1040ez You can include lodging for a person traveling with the person receiving the medical care. H and r block 1040ez For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. H and r block 1040ez Meals are not included. H and r block 1040ez See Lodging , earlier. H and r block 1040ez You cannot include in medical expenses a trip or vacation taken merely for a change in environment, improvement of morale, or general improvement of health, even if the trip is made on the advice of a doctor. H and r block 1040ez However, see Medical Conferences , earlier. H and r block 1040ez Tuition Under special circumstances, you can include charges for tuition in medical expenses. H and r block 1040ez See Special Education , earlier. H and r block 1040ez You can include charges for a health plan included in a lump-sum tuition fee if the charges are separately stated or can easily be obtained from the school. H and r block 1040ez Vasectomy You can include in medical expenses the amount you pay for a vasectomy. H and r block 1040ez Vision Correction Surgery See Eye Surgery , earlier. H and r block 1040ez Weight-Loss Program You can include in medical expenses amounts you pay to lose weight if it is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). H and r block 1040ez This includes fees you pay for membership in a weight reduction group as well as fees for attendance at periodic meetings. H and r block 1040ez You cannot include membership dues in a gym, health club, or spa as medical expenses, but you can include separate fees charged there for weight loss activities. H and r block 1040ez You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. H and r block 1040ez You can include the cost of special food in medical expenses only if: The food does not satisfy normal nutritional needs, The food alleviates or treats an illness, and The need for the food is substantiated by a physician. H and r block 1040ez The amount you can include in medical expenses is limited to the amount by which the cost of the special food exceeds the cost of a normal diet. H and r block 1040ez See also Weight-Loss Program under What Expenses Are Not Includible, later. H and r block 1040ez Wheelchair You can include in medical expenses amounts you pay for a wheelchair used mainly for the relief of sickness or disability, and not just to provide transportation to and from work. H and r block 1040ez The cost of operating and maintaining the wheelchair is also a medical expense. H and r block 1040ez Wig You can include in medical expenses the cost of a wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease. H and r block 1040ez X-ray You can include in medical expenses amounts you pay for X-rays for medical reasons. H and r block 1040ez What Expenses Are Not Includible? Following is a list of some items that you cannot include in figuring your medical expense deduction. H and r block 1040ez The items are listed in alphabetical order. H and r block 1040ez Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby You cannot include in medical expenses amounts you pay for the care of children, even if the expenses enable you, your spouse, or your dependent to get medical or dental treatment. H and r block 1040ez Also, any expense allowed as a childcare credit cannot be treated as an expense paid for medical care. H and r block 1040ez Controlled Substances You cannot include in medical expenses amounts you pay for controlled substances (such as marijuana, laetrile, etc. H and r block 1040ez ), even if such substances are legalized by state law. H and r block 1040ez Such substances are not legal under federal law and cannot be included in medical expenses. H and r block 1040ez Cosmetic Surgery Generally, you cannot include in medical expenses the amount you pay for unnecessary cosmetic surgery. H and r block 1040ez This includes any procedure that is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. H and r block 1040ez You generally cannot include in medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction. H and r block 1040ez You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. H and r block 1040ez Example. H and r block 1040ez An individual undergoes surgery that removes a breast as part of treatment for cancer. H and r block 1040ez She pays a surgeon to reconstruct the breast. H and r block 1040ez The surgery to reconstruct the breast corrects a deformity directly related to the disease. H and r block 1040ez The cost of the surgery is includible in her medical expenses. H and r block 1040ez Dancing Lessons You cannot include in medical expenses the cost of dancing lessons, swimming lessons, etc. H and r block 1040ez , even if they are recommended by a doctor, if they are only for the improvement of general health. H and r block 1040ez Diaper Service You cannot include in medical expenses the amount you pay for diapers or diaper services, unless they are needed to relieve the effects of a particular disease. H and r block 1040ez Electrolysis or Hair Removal See Cosmetic Surgery , earlier. H and r block 1040ez Flexible Spending Account You cannot include in medical expenses amounts for which you are fully reimbursed by your flexible spending account if you contribute a part of your income on a pre-tax basis to pay for the qualified benefit. H and r block 1040ez Funeral Expenses You cannot include in medical expenses amounts you pay for funerals. H and r block 1040ez Future Medical Care Generally, you cannot include in medical expenses current payments for medical care (including medical insurance) to be provided substantially beyond the end of the year. H and r block 1040ez This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care or long-term care of the type described at Lifetime Care—Advance Payments or Long-Term Care, earlier under What Medical Expenses Are Includible. H and r block 1040ez Hair Transplant See Cosmetic Surgery , earlier. H and r block 1040ez Health Club Dues You cannot include in medical expenses health club dues or amounts paid to improve one's general health or to relieve physical or mental discomfort not related to a particular medical condition. H and r block 1040ez You cannot include in medical expenses the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. H and r block 1040ez Health Coverage Tax Credit You cannot include in medical expenses amounts you pay for health insurance that you use in figuring your health coverage tax credit. H and r block 1040ez For more information, see Health Coverage Tax Credit , later. H and r block 1040ez Health Savings Accounts You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. H and r block 1040ez Contributions to health savings accounts are deducted separately. H and r block 1040ez See Publication 969. H and r block 1040ez Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. H and r block 1040ez This is a personal expense that is not deductible. H and r block 1040ez However, you may be able to include certain expenses paid to a person providing nursing-type services. H and r block 1040ez For more information, see Nursing Services , earlier under What Medical Expenses Are Includible. H and r block 1040ez Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. H and r block 1040ez For more information, see Long-Term Care , earlier under What Medical Expenses Are Includible. H and r block 1040ez Illegal Operations and Treatments You cannot include in medical expenses amounts you pay for illegal operations, treatments, or controlled substances whether rendered or prescribed by licensed or unlicensed practitioners. H and r block 1040ez Insurance Premiums See Insurance Premiums under What Medical Expenses Are Includible, earlier. H and r block 1040ez Maternity Clothes You cannot include in medical expenses amounts you pay for maternity clothes. H and r block 1040ez Medical Savings Account (MSA) You cannot include in medical expenses amounts you contribute to an Archer MSA. H and r block 1040ez You cannot include expenses you pay for with a tax-free distribution from your Archer MSA. H and r block 1040ez You also cannot use other funds equal to the amount of the distribution and include the expenses. H and r block 1040ez For more information on Archer MSAs, see Publication 969. H and r block 1040ez Medicines and Drugs From Other Countries In general, you cannot include in your medical expenses the cost of a prescribed drug brought in (or ordered shipped) from another country. H and r block 1040ez You can only include the cost of a drug that was imported legally. H and r block 1040ez For example, you can include the cost of a prescribed drug the Food and Drug Administration announces can be legally imported by individuals. H and r block 1040ez You can include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States. H and r block 1040ez Nonprescription Drugs and Medicines Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. H and r block 1040ez Example. H and r block 1040ez Your doctor recommends that you take aspirin. H and r block 1040ez Because aspirin is a drug that does not require a physician's prescription, you cannot include its cost in your medical expenses. H and r block 1040ez Nutritional Supplements You cannot include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. H and r block 1040ez unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. H and r block 1040ez Otherwise, these items are taken to maintain your ordinary good health, and are not for medical care. H and r block 1040ez Personal Use Items You cannot include in medical expenses the cost of an item ordinarily used for personal, living, or family purposes unless it is used primarily to prevent or alleviate a physical or mental defect or illness. H and r block 1040ez For example, the cost of a toothbrush and toothpaste is a nondeductible personal expense. H and r block 1040ez In order to accommodate an individual with a physical defect, you may have to purchase an item ordinarily used as a personal, living, or family item in a special form. H and r block 1040ez You can include the excess of the cost of the item in a special form over the cost of the item in normal form as a medical expense. H and r block 1040ez (See Braille Books and Magazines under What Medical Expenses Are Includible, earlier. H and r block 1040ez ) Swimming Lessons See Dancing Lessons , earlier. H and r block 1040ez Teeth Whitening You cannot include in medical expenses amounts paid to whiten teeth. H and r block 1040ez See Cosmetic Surgery , earlier. H and r block 1040ez Veterinary Fees You generally cannot include veterinary fees in your medical expenses, but see Guide Dog or Other Service Animal under What Medical Expenses Are Includible, earlier. H and r block 1040ez Weight-Loss Program You cannot include in medical expenses the cost of a weight-loss program if the purpose of the weight loss is the improvement of appearance, general health, or sense of well-being. H and r block 1040ez You cannot include amounts you pay to lose weight unless the weight loss is a treatment for a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). H and r block 1040ez If the weight-loss treatment is not for a specific disease diagnosed by a physician, you cannot include either the fees you pay for membership in a weight reduction group or fees for attendance at periodic meetings. H and r block 1040ez Also, you cannot include membership dues in a gym, health club, or spa. H and r block 1040ez You cannot include the cost of diet food or beverages in medical expenses because the diet food and beverages substitute for what is normally consumed to satisfy nutritional needs. H and r block 1040ez See Weight-Loss Program under What Medical Expenses Are Includible, earlier. H and r block 1040ez How Do You Treat Reimbursements? You can include in medical expenses only those amounts paid during the tax year for which you received no insurance or other reimbursement. H and r block 1040ez Insurance Reimbursement You must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. H and r block 1040ez This includes payments from Medicare. H and r block 1040ez Even if a policy provides reimbursement only for certain specific medical expenses, you must use amounts you receive from that policy to reduce your total medical expenses, including those it does not reimburse. H and r block 1040ez Example. H and r block 1040ez You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. H and r block 1040ez The insurance you receive for the hospital and doctors' bills is more than their charges. H and r block 1040ez In figuring your medical deduction, you must reduce the total amount you spent for medical care by the total amount of insurance you received, even if the policies do not cover some of your medical expenses. H and r block 1040ez Health reimbursement arrange