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Myfreetax 9. Myfreetax   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Myfreetax Depletion unit. Myfreetax Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Myfreetax The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Myfreetax There are two ways of figuring depletion: cost depletion and percentage depletion. Myfreetax For mineral property, you generally must use the method that gives you the larger deduction. Myfreetax For standing timber, you must use cost depletion. Myfreetax Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Myfreetax More than one person can have an economic interest in the same mineral deposit or timber. Myfreetax In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Myfreetax You have an economic interest if both the following apply. Myfreetax You have acquired by investment any interest in mineral deposits or standing timber. Myfreetax You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Myfreetax A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Myfreetax A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Myfreetax Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Myfreetax Basis adjustment for depletion. Myfreetax   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Myfreetax Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Myfreetax For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Myfreetax You can treat two or more separate interests as one property or as separate properties. Myfreetax See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Myfreetax There are two ways of figuring depletion on mineral property. Myfreetax Cost depletion. Myfreetax Percentage depletion. Myfreetax Generally, you must use the method that gives you the larger deduction. Myfreetax However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Myfreetax See Oil and Gas Wells , later. Myfreetax Cost Depletion To figure cost depletion you must first determine the following. Myfreetax The property's basis for depletion. Myfreetax The total recoverable units of mineral in the property's natural deposit. Myfreetax The number of units of mineral sold during the tax year. Myfreetax Basis for depletion. Myfreetax   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Myfreetax Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Myfreetax The residual value of land and improvements at the end of operations. Myfreetax The cost or value of land acquired for purposes other than mineral production. Myfreetax Adjusted basis. Myfreetax   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Myfreetax Your adjusted basis can never be less than zero. Myfreetax See Publication 551, Basis of Assets, for more information on adjusted basis. Myfreetax Total recoverable units. Myfreetax   The total recoverable units is the sum of the following. Myfreetax The number of units of mineral remaining at the end of the year (including units recovered but not sold). Myfreetax The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Myfreetax   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Myfreetax You must include ores and minerals that are developed, in sight, blocked out, or assured. Myfreetax You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Myfreetax But see Elective safe harbor for owners of oil and gas property , later. Myfreetax Number of units sold. Myfreetax   You determine the number of units sold during the tax year based on your method of accounting. Myfreetax Use the following table to make this determination. Myfreetax    IF you  use . Myfreetax . Myfreetax . Myfreetax THEN the units sold during the year are . Myfreetax . Myfreetax . Myfreetax The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Myfreetax An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Myfreetax   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Myfreetax Figuring the cost depletion deduction. Myfreetax   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Myfreetax Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Myfreetax Rate per unit. Myfreetax 2 Multiply the rate per unit by units sold during the tax year. Myfreetax Cost depletion deduction. Myfreetax You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Myfreetax Elective safe harbor for owners of oil and gas property. Myfreetax   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Myfreetax If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Myfreetax For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Myfreetax irs. Myfreetax gov/pub/irs-irbs/irb04-10. Myfreetax pdf. Myfreetax   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Myfreetax The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Myfreetax The election, if made, is effective for the tax year in which it is made and all later years. Myfreetax It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Myfreetax Once revoked, it cannot be re-elected for the next 5 years. Myfreetax Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Myfreetax The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Myfreetax Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Myfreetax Gross income. Myfreetax   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Myfreetax Any rents or royalties you paid or incurred for the property. Myfreetax The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Myfreetax A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Myfreetax   Use the following fraction to figure the part of the bonus you must subtract. Myfreetax No. Myfreetax of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Myfreetax For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Myfreetax Taxable income limit. Myfreetax   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Myfreetax   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Myfreetax These deductible items include, but are not limited to, the following. Myfreetax Operating expenses. Myfreetax Certain selling expenses. Myfreetax Administrative and financial overhead. Myfreetax Depreciation. Myfreetax Intangible drilling and development costs. Myfreetax Exploration and development expenditures. Myfreetax Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Myfreetax Losses sustained. Myfreetax   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Myfreetax Do not deduct any net operating loss deduction from the gross income from the property. Myfreetax Corporations do not deduct charitable contributions from the gross income from the property. Myfreetax If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Myfreetax See section 1. Myfreetax 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Myfreetax Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Myfreetax You are either an independent producer or a royalty owner. Myfreetax The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Myfreetax If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Myfreetax For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Myfreetax Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Myfreetax However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Myfreetax For information on figuring the deduction, see Figuring percentage depletion , later. Myfreetax Refiners who cannot claim percentage depletion. Myfreetax   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Myfreetax The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Myfreetax Related person. Myfreetax   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Myfreetax For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Myfreetax A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Myfreetax For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Myfreetax The value of the outstanding stock of a corporation. Myfreetax The interest in the profits or capital of a partnership. Myfreetax The beneficial interests in an estate or trust. Myfreetax Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Myfreetax Retailers who cannot claim percentage depletion. Myfreetax   You cannot claim percentage depletion if both the following apply. Myfreetax You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Myfreetax Through a retail outlet operated by you or a related person. Myfreetax To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Myfreetax To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Myfreetax The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Myfreetax   For the purpose of determining if this rule applies, do not count the following. Myfreetax Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Myfreetax Bulk sales of aviation fuels to the Department of Defense. Myfreetax Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Myfreetax Related person. Myfreetax   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Myfreetax Sales through a related person. Myfreetax   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Myfreetax   You are not considered to be selling through a related person who is a retailer if all the following apply. Myfreetax You do not have a significant ownership interest in the retailer. Myfreetax You sell your production to persons who are not related to either you or the retailer. Myfreetax The retailer does not buy oil or natural gas from your customers or persons related to your customers. Myfreetax There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Myfreetax Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Myfreetax Transferees who cannot claim percentage depletion. Myfreetax   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Myfreetax For a definition of the term “transfer,” see section 1. Myfreetax 613A-7(n) of the regulations. Myfreetax For a definition of the term “interest in proven oil or gas property,” see section 1. Myfreetax 613A-7(p) of the regulations. Myfreetax Figuring percentage depletion. Myfreetax   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Myfreetax If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Myfreetax If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Myfreetax   In addition, there is a limit on the percentage depletion deduction. Myfreetax See Taxable income limit , later. Myfreetax Average daily production. Myfreetax   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Myfreetax Partial interest. Myfreetax   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Myfreetax   You have a partial interest in the production from a property if you have a net profits interest in the property. Myfreetax To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Myfreetax To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Myfreetax Then multiply the total production from the property by your percentage participation to figure your share of the production. Myfreetax Example. Myfreetax Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Myfreetax During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Myfreetax Javier had expenses of $90,000 attributable to the property. Myfreetax The property generated a net profit of $110,000 ($200,000 − $90,000). Myfreetax Pablo received income of $22,000 ($110,000 × . Myfreetax 20) for his net profits interest. Myfreetax Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Myfreetax Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Myfreetax Depletable oil or natural gas quantity. Myfreetax   Generally, your depletable oil quantity is 1,000 barrels. Myfreetax Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Myfreetax If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Myfreetax Example. Myfreetax You have both oil and natural gas production. Myfreetax To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Myfreetax Your depletable natural gas quantity is 2. Myfreetax 16 million cubic feet of gas (360 × 6000). Myfreetax You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Myfreetax If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Myfreetax Also, see Notice 2012-50, available at www. Myfreetax irs. Myfreetax gov/irb/2012–31_IRB/index. Myfreetax html. Myfreetax Business entities and family members. Myfreetax   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Myfreetax Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Myfreetax You and your spouse and minor children. Myfreetax A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Myfreetax Controlled group of corporations. Myfreetax   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Myfreetax They share the depletable quantity. Myfreetax A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Myfreetax ” Gross income from the property. Myfreetax   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Myfreetax If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Myfreetax   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Myfreetax   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Myfreetax Average daily production exceeds depletable quantities. Myfreetax   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Myfreetax Figure your average daily production of oil or natural gas for the year. Myfreetax Figure your depletable oil or natural gas quantity for the year. Myfreetax Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Myfreetax Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Myfreetax This is your depletion allowance for that property for the year. Myfreetax Taxable income limit. Myfreetax   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Myfreetax 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Myfreetax For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Myfreetax 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Myfreetax You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Myfreetax Add it to your depletion allowance (before applying any limits) for the following year. Myfreetax Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Myfreetax (However, see Electing large partnerships must figure depletion allowance , later. Myfreetax ) Each partner or shareholder must decide whether to use cost or percentage depletion. Myfreetax If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Myfreetax Partner's or shareholder's adjusted basis. Myfreetax   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Myfreetax The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Myfreetax   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Myfreetax However, in some cases, it is figured according to the partner's interest in partnership income. Myfreetax   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Myfreetax Recordkeeping. Myfreetax Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Myfreetax The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Myfreetax The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Myfreetax Reporting the deduction. Myfreetax   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Myfreetax Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Myfreetax The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Myfreetax The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Myfreetax Form 6198, At-Risk Limitations. Myfreetax Form 8582, Passive Activity Loss Limitations. Myfreetax Electing large partnerships must figure depletion allowance. Myfreetax   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Myfreetax The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Myfreetax Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Myfreetax   An electing large partnership is one that meets both the following requirements. Myfreetax The partnership had 100 or more partners in the preceding year. Myfreetax The partnership chooses to be an electing large partnership. Myfreetax Disqualified persons. Myfreetax   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Myfreetax Disqualified persons must figure it themselves, as explained earlier. Myfreetax   All the following are disqualified persons. Myfreetax Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Myfreetax Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Myfreetax Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Myfreetax Average daily production is discussed earlier. Myfreetax Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Myfreetax Natural gas sold under a fixed contract. Myfreetax   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Myfreetax This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Myfreetax The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Myfreetax Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Myfreetax Natural gas from geopressured brine. Myfreetax   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Myfreetax This is natural gas that is both the following. Myfreetax Produced from a well you began to drill after September 1978 and before 1984. Myfreetax Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Myfreetax Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Myfreetax Mines and other natural deposits. Myfreetax   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Myfreetax   The following is a list of the percentage depletion rates for the more common minerals. Myfreetax DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Myfreetax Corporate deduction for iron ore and coal. Myfreetax   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Myfreetax Gross income from the property. Myfreetax   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Myfreetax Mining includes all the following. Myfreetax Extracting ores or minerals from the ground. Myfreetax Applying certain treatment processes described later. Myfreetax Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Myfreetax Excise tax. Myfreetax   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Myfreetax Extraction. Myfreetax   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Myfreetax This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Myfreetax Treatment processes. Myfreetax   The processes included as mining depend on the ore or mineral mined. Myfreetax To qualify as mining, the treatment processes must be applied by the mine owner or operator. Myfreetax For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Myfreetax Transportation of more than 50 miles. Myfreetax   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Myfreetax    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Myfreetax Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Myfreetax For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Myfreetax irs. Myfreetax gov/irb/2013-01_IRB/ar11. Myfreetax html. Myfreetax Disposal of coal or iron ore. Myfreetax   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Myfreetax You disposed of it after holding it for more than 1 year. Myfreetax You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Myfreetax Treat any gain on the disposition as a capital gain. Myfreetax Disposal to related person. Myfreetax   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Myfreetax A related person (as listed in chapter 2 of Publication 544). Myfreetax A person owned or controlled by the same interests that own or control you. Myfreetax Geothermal deposits. Myfreetax   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Myfreetax A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Myfreetax For percentage depletion purposes, a geothermal deposit is not considered a gas well. Myfreetax   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Myfreetax See Gross income from the property , earlier, under Oil and Gas Wells. Myfreetax Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Myfreetax Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Myfreetax A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Myfreetax Bonuses and advanced royalties. Myfreetax   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Myfreetax If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Myfreetax Figuring cost depletion. Myfreetax   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Myfreetax To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Myfreetax Figuring percentage depletion. Myfreetax   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Myfreetax Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Myfreetax However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Myfreetax Ending the lease. Myfreetax   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Myfreetax Do this for the year the lease ends or is abandoned. Myfreetax Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Myfreetax   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Myfreetax Include this amount in income for the year the lease ends. Myfreetax Increase your adjusted basis in the property by the amount you include in income. Myfreetax Delay rentals. Myfreetax   These are payments for deferring development of the property. Myfreetax Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Myfreetax These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Myfreetax Timber You can figure timber depletion only by the cost method. Myfreetax Percentage depletion does not apply to timber. Myfreetax Base your depletion on your cost or other basis in the timber. Myfreetax Your cost does not include the cost of land or any amounts recoverable through depreciation. Myfreetax Depletion takes place when you cut standing timber. Myfreetax You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Myfreetax Figuring cost depletion. Myfreetax   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Myfreetax Timber units. Myfreetax   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Myfreetax You measure the timber using board feet, log scale, cords, or other units. Myfreetax If you later determine that you have more or less units of timber, you must adjust the original estimate. Myfreetax   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Myfreetax Depletion unit. Myfreetax   You figure your depletion unit each year by taking the following steps. Myfreetax Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Myfreetax Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Myfreetax Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Myfreetax Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Myfreetax Divide the result of (2) by the result of (3). Myfreetax This is your depletion unit. Myfreetax Example. Myfreetax You bought a timber tract for $160,000 and the land was worth as much as the timber. Myfreetax Your basis for the timber is $80,000. Myfreetax Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Myfreetax If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Myfreetax When to claim depletion. Myfreetax   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Myfreetax Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Myfreetax The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Myfreetax Example. Myfreetax The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Myfreetax You would deduct $20,000 of the $40,000 depletion that year. Myfreetax You would add the remaining $20,000 depletion to your closing inventory of timber products. Myfreetax Electing to treat the cutting of timber as a sale or exchange. Myfreetax   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Myfreetax You must make the election on your income tax return for the tax year to which it applies. Myfreetax If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Myfreetax You generally report the gain as long-term capital gain. Myfreetax The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Myfreetax For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Myfreetax   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Myfreetax The prior election (and revocation) is disregarded for purposes of making a subsequent election. Myfreetax See Form T (Timber), Forest Activities Schedule, for more information. Myfreetax Form T. Myfreetax   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Myfreetax Prev  Up  Next   Home   More Online Publications
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Myfreetax Publication 502 - Main Content Table of Contents What Are Medical Expenses? What Expenses Can You Include This Year?Community property states. Myfreetax 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. Myfreetax These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. Myfreetax They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Myfreetax Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Myfreetax They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation. Myfreetax 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. Myfreetax Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract. Myfreetax 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. Myfreetax (But see Decedent under Whose Medical Expenses Can You Include, for an exception. Myfreetax ) If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax S. Myfreetax Individual Income Tax Return, for the year in which you overlooked the expense. Myfreetax Do not claim the expense on this year's return. Myfreetax 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. Myfreetax You cannot include medical expenses that were paid by insurance companies or other sources. Myfreetax This is true whether the payments were made directly to you, to the patient, or to the provider of the medical services. Myfreetax Separate returns. Myfreetax   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. Myfreetax 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. Myfreetax Community property states. Myfreetax   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. Myfreetax Generally, each of you should include half the expenses. Myfreetax If medical expenses are paid out of the separate funds of one individual, only the individual who paid the medical expenses can include them. Myfreetax If you live in a community property state and are not filing a joint return, see Publication 555, Community Property. Myfreetax 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. Myfreetax 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. Myfreetax 5% of your AGI. Myfreetax Example. Myfreetax You are unmarried and were born after January 2, 1949, and your AGI is $40,000, 10% of which is $4,000. Myfreetax You paid medical expenses of $2,500. Myfreetax You cannot deduct any of your medical expenses because they are not more than 10% of your AGI. Myfreetax 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. Myfreetax There are different rules for decedents and for individuals who are the subject of multiple support agreements. Myfreetax See Support claimed under a multiple support agreement , later under Qualifying Relative. Myfreetax Spouse You can include medical expenses you paid for your spouse. Myfreetax 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. Myfreetax Example 1. Myfreetax Mary received medical treatment before she married Bill. Myfreetax Bill paid for the treatment after they married. Myfreetax Bill can include these expenses in figuring his medical expense deduction even if Bill and Mary file separate returns. Myfreetax If Mary had paid the expenses, Bill could not include Mary's expenses in his separate return. Myfreetax Mary would include the amounts she paid during the year in her separate return. Myfreetax If they filed a joint return, the medical expenses both paid during the year would be used to figure their medical expense deduction. Myfreetax Example 2. Myfreetax This year, John paid medical expenses for his wife Louise, who died last year. Myfreetax John married Belle this year and they file a joint return. Myfreetax 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. Myfreetax Dependent You can include medical expenses you paid for your dependent. Myfreetax 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. Myfreetax A person generally qualifies as your dependent for purposes of the medical expense deduction if both of the following requirements are met. Myfreetax The person was a qualifying child (defined later) or a qualifying relative (defined later), and The person was a U. Myfreetax S. Myfreetax citizen or national or a resident of the United States, Canada, or Mexico. Myfreetax If your qualifying child was adopted, see Exception for adopted child , later. Myfreetax 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. Myfreetax Exception for adopted child. Myfreetax   If you are a U. Myfreetax S. Myfreetax 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. Myfreetax S. Myfreetax citizen or national, or a resident of the United States, Canada, or Mexico. Myfreetax 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. Myfreetax Adopted child. Myfreetax   A legally adopted child is treated as your own child. Myfreetax This child includes a child lawfully placed with you for legal adoption. Myfreetax   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. Myfreetax   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. Myfreetax   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. Myfreetax    You may be able to take a credit for other expenses related to an adoption. Myfreetax See the Instructions for Form 8839, Qualified Adoption Expenses, for more information. Myfreetax Child of divorced or separated parents. Myfreetax   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. Myfreetax 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. Myfreetax This does not apply if the child's exemption is being claimed under a multiple support agreement (discussed later). Myfreetax 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. Myfreetax 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. Myfreetax Support claimed under a multiple support agreement. Myfreetax   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. Myfreetax 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. Myfreetax   Any medical expenses paid by others who joined you in the agreement cannot be included as medical expenses by anyone. Myfreetax However, you can include the entire unreimbursed amount you paid for medical expenses. Myfreetax Example. Myfreetax You and your three brothers each provide one-fourth of your mother's total support. Myfreetax Under a multiple support agreement, you treat your mother as your dependent. Myfreetax You paid all of her medical expenses. Myfreetax Your brothers repaid you for three-fourths of these expenses. Myfreetax In figuring your medical expense deduction, you can include only one-fourth of your mother's medical expenses. Myfreetax Your brothers cannot include any part of the expenses. Myfreetax 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. Myfreetax 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. Myfreetax This includes expenses for the decedent's spouse and dependents as well as for the decedent. Myfreetax 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. Myfreetax The expenses must be paid within the 1-year period beginning with the day after the date of death. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax Example. Myfreetax John properly filed his 2012 income tax return. Myfreetax He died in 2013 with unpaid medical expenses of $1,500 from 2012 and $1,800 in 2013. Myfreetax 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. Myfreetax The $1,800 of medical expenses from 2013 can be included on the decedent's final return for 2013. Myfreetax 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. Myfreetax 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. Myfreetax What Medical Expenses Are Includible? Following is a list of items that you can include in figuring your medical expense deduction. Myfreetax The items are listed in alphabetical order. Myfreetax This list does not include all possible medical expenses. Myfreetax To determine if an expense not listed can be included in figuring your medical expense deduction, see What Are Medical Expenses , earlier. Myfreetax Abortion You can include in medical expenses the amount you pay for a legal abortion. Myfreetax Acupuncture You can include in medical expenses the amount you pay for acupuncture. Myfreetax Alcoholism You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for alcohol addiction. Myfreetax This includes meals and lodging provided by the center during treatment. Myfreetax 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. Myfreetax Ambulance You can include in medical expenses amounts you pay for ambulance service. Myfreetax Annual Physical Examination See Physical Examination , later. Myfreetax Artificial Limb You can include in medical expenses the amount you pay for an artificial limb. Myfreetax Artificial Teeth You can include in medical expenses the amount you pay for artificial teeth. Myfreetax Bandages You can include in medical expenses the cost of medical supplies such as bandages. Myfreetax Birth Control Pills You can include in medical expenses the amount you pay for birth control pills prescribed by a doctor. Myfreetax Body Scan You can include in medical expenses the cost of an electronic body scan. Myfreetax 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. Myfreetax Breast Pumps and Supplies You can include in medical expenses the cost of breast pumps and supplies that assist lactation. Myfreetax 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. Myfreetax See Cosmetic Surgery , later. Myfreetax 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. Myfreetax The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. Myfreetax The cost of the improvement is reduced by the increase in the value of your property. Myfreetax The difference is a medical expense. Myfreetax If the value of your property is not increased by the improvement, the entire cost is included as a medical expense. Myfreetax 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. Myfreetax These improvements include, but are not limited to, the following items. Myfreetax Constructing entrance or exit ramps for your home. Myfreetax Widening doorways at entrances or exits to your home. Myfreetax Widening or otherwise modifying hallways and interior doorways. Myfreetax Installing railings, support bars, or other modifications to bathrooms. Myfreetax Lowering or modifying kitchen cabinets and equipment. Myfreetax Moving or modifying electrical outlets and fixtures. Myfreetax Installing porch lifts and other forms of lifts (but elevators generally add value to the house). Myfreetax Modifying fire alarms, smoke detectors, and other warning systems. Myfreetax Modifying stairways. Myfreetax Adding handrails or grab bars anywhere (whether or not in bathrooms). Myfreetax Modifying hardware on doors. Myfreetax Modifying areas in front of entrance and exit doorways. Myfreetax Grading the ground to provide access to the residence. Myfreetax Only reasonable costs to accommodate a home to a disabled condition are considered medical care. Myfreetax Additional costs for personal motives, such as for architectural or aesthetic reasons, are not medical expenses. Myfreetax Capital expense worksheet. Myfreetax   Use Worksheet A to figure the amount of your capital expense to include in your medical expenses. Myfreetax Worksheet A. Myfreetax Capital Expense Worksheet Instructions: Use this worksheet to figure the amount, if any, of your medical expenses due to a home improvement. Myfreetax 1. Myfreetax Enter the amount you paid for the home improvement 1. Myfreetax   2. Myfreetax Enter the value of your home immediately after the improvement 2. Myfreetax       3. Myfreetax Enter the value of your home immediately before the improvement 3. Myfreetax       4. Myfreetax Subtract line 3 from line 2. Myfreetax This is the increase in the value of your home due to the improvement 4. Myfreetax     • If line 4 is more than or equal to line 1, you have no medical expenses due to the home improvement; stop here. Myfreetax       • If line 4 is less than line 1, go to line 5. Myfreetax     5. Myfreetax Subtract line 4 from line 1. Myfreetax These are your medical expenses due to the home improvement 5. Myfreetax   Operation and upkeep. Myfreetax   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. Myfreetax This rule applies even if none or only part of the original cost of the capital asset qualified as a medical care expense. Myfreetax Improvements to property rented by a person with a disability. Myfreetax   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. Myfreetax Example. Myfreetax John has arthritis and a heart condition. Myfreetax He cannot climb stairs or get into a bathtub. Myfreetax On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. Myfreetax The landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. Myfreetax John can include in medical expenses the entire amount he paid. Myfreetax 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. Myfreetax Special design. Myfreetax   You can include in medical expenses the difference between the cost of a regular car and a car specially designed to hold a wheelchair. Myfreetax Cost of operation. Myfreetax   The includible costs of using a car for medical reasons are explained under Transportation , later. Myfreetax Chiropractor You can include in medical expenses fees you pay to a chiropractor for medical care. Myfreetax Christian Science Practitioner You can include in medical expenses fees you pay to Christian Science practitioners for medical care. Myfreetax Contact Lenses You can include in medical expenses amounts you pay for contact lenses needed for medical reasons. Myfreetax You can also include the cost of equipment and materials required for using contact lenses, such as saline solution and enzyme cleaner. Myfreetax See Eyeglasses and Eye Surgery , later. Myfreetax Crutches You can include in medical expenses the amount you pay to buy or rent crutches. Myfreetax Dental Treatment You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Myfreetax 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. Myfreetax Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments. Myfreetax But see Teeth Whitening under What Expenses Are Not Includible, later. Myfreetax Diagnostic Devices You can include in medical expenses the cost of devices used in diagnosing and treating illness and disease. Myfreetax Example. Myfreetax You have diabetes and use a blood sugar test kit to monitor your blood sugar level. Myfreetax You can include the cost of the blood sugar test kit in your medical expenses. Myfreetax 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. Myfreetax (See Publication 503, Child and Dependent Care Expenses. Myfreetax ) 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. Myfreetax Drug Addiction You can include in medical expenses amounts you pay for an inpatient's treatment at a therapeutic center for drug addiction. Myfreetax This includes meals and lodging at the center during treatment. Myfreetax Drugs See Medicines , later. Myfreetax Eye Exam You can include in medical expenses the amount you pay for eye examinations. Myfreetax Eyeglasses You can include in medical expenses amounts you pay for eyeglasses and contact lenses needed for medical reasons. Myfreetax See Contact Lenses , earlier, for more information. Myfreetax 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. Myfreetax Fertility Enhancement You can include in medical expenses the cost of the following procedures to overcome an inability to have children. Myfreetax Procedures such as in vitro fertilization (including temporary storage of eggs or sperm). Myfreetax Surgery, including an operation to reverse prior surgery that prevented the person operated on from having children. Myfreetax Founder's Fee See Lifetime Care—Advance Payments , later. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax These amounts are treated as medical insurance premiums. Myfreetax See Insurance Premiums , later. Myfreetax Hearing Aids You can include in medical expenses the cost of a hearing aid and batteries, repairs, and maintenance needed to operate it. Myfreetax Home Care See Nursing Services , later. Myfreetax Home Improvements See Capital Expenses , earlier. Myfreetax 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. Myfreetax This includes amounts paid for meals and lodging. Myfreetax Also see Lodging , later. Myfreetax Insurance Premiums You can include in medical expenses insurance premiums you pay for policies that cover medical care. Myfreetax 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). Myfreetax See Qualified Long-Term Care Insurance Contracts under Long-Term Care, later. Myfreetax 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. Myfreetax The cost of the medical part must be separately stated in the insurance contract or given to you in a separate statement. Myfreetax Health coverage tax credit. Myfreetax   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. Myfreetax 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. Myfreetax S. Myfreetax Treasury–HCTC,” or Any health coverage tax credit advance payments shown on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. Myfreetax 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. Myfreetax 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. Myfreetax Example. Myfreetax You are a federal employee participating in the premium conversion plan of the Federal Employee Health Benefits (FEHB) program. Myfreetax Your share of the FEHB premium is paid by making a pre-tax reduction in your salary. Myfreetax 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. Myfreetax Long-term care services. Myfreetax   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. Myfreetax This amount will be reported as wages on your Form W-2. Myfreetax Retired public safety officers. Myfreetax   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. Myfreetax This applies only to distributions that would otherwise be included in income. Myfreetax Health reimbursement arrangement (HRA). Myfreetax   If you have medical expenses that are reimbursed by a health reimbursement arrangement, you cannot include those expenses in your medical expenses. Myfreetax This is because an HRA is funded solely by the employer. Myfreetax 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. Myfreetax The payroll tax paid for Medicare A is not a medical expense. Myfreetax 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. Myfreetax In this situation you can include the premiums you paid for Medicare A as a medical expense. Myfreetax Medicare B Medicare B is a supplemental medical insurance. Myfreetax Premiums you pay for Medicare B are a medical expense. Myfreetax Check the information you received from the Social Security Administration to find out your premium. Myfreetax Medicare D Medicare D is a voluntary prescription drug insurance program for persons with Medicare A or B. Myfreetax You can include as a medical expense premiums you pay for Medicare D. Myfreetax 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). Myfreetax 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. Myfreetax 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. Myfreetax You can include this cost of continuing participation in the health plan as a medical expense. Myfreetax 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. Myfreetax You cannot include this cost of continuing participation in that health plan as a medical expense. Myfreetax 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. Myfreetax , 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. Myfreetax Taxes imposed by any governmental unit, such as Medicare taxes, are not insurance premiums. Myfreetax Coverage for nondependents. Myfreetax   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. Myfreetax 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. Myfreetax  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. Myfreetax 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. Myfreetax Laboratory Fees You can include in medical expenses the amounts you pay for laboratory fees that are part of medical care. Myfreetax Lactation Expenses See Breast Pumps and Supplies , earlier. Myfreetax 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. Myfreetax These surfaces must be in poor repair (peeling or cracking) or within the child's reach. Myfreetax The cost of repainting the scraped area is not a medical expense. Myfreetax If, instead of removing the paint, you cover the area with wallboard or paneling, treat these items as capital expenses. Myfreetax See Capital Expenses , earlier. Myfreetax Do not include the cost of painting the wallboard as a medical expense. Myfreetax Learning Disability See Special Education , later. Myfreetax Legal Fees You can include in medical expenses legal fees you paid that are necessary to authorize treatment for mental illness. Myfreetax 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. Myfreetax 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. Myfreetax The part of the payment you include is the amount properly allocable to medical care. Myfreetax 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. Myfreetax You can use a statement from the retirement home to prove the amount properly allocable to medical care. Myfreetax The statement must be based either on the home's prior experience or on information from a comparable home. Myfreetax Dependents with disabilities. Myfreetax   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. Myfreetax The payments must be a condition for the institution's future acceptance of your child and must not be refundable. Myfreetax Payments for future medical care. Myfreetax   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. Myfreetax This rule does not apply in situations where the future care is purchased in connection with obtaining lifetime care of the type described earlier. Myfreetax 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. Myfreetax See Nursing Home , later. Myfreetax You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. Myfreetax You can include the cost of such lodging while away from home if all of the following requirements are met. Myfreetax The lodging is primarily for and essential to medical care. Myfreetax 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. Myfreetax The lodging is not lavish or extravagant under the circumstances. Myfreetax There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. Myfreetax The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. Myfreetax You can include lodging for a person traveling with the person receiving the medical care. Myfreetax 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. Myfreetax Meals are not included. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax Chronically ill individual. Myfreetax   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. Myfreetax 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. Myfreetax Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. Myfreetax He or she requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment. Myfreetax Maintenance and personal care services. Myfreetax    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). Myfreetax 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. Myfreetax 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. Myfreetax The amount of qualified long-term care premiums you can include is limited. Myfreetax You can include the following as medical expenses on Schedule A (Form 1040). Myfreetax Qualified long-term care premiums up to the following amounts. Myfreetax Age 40 or under – $360. Myfreetax Age 41 to 50 – $680. Myfreetax Age 51 to 60 – $1,360. Myfreetax Age 61 to 70 – $3,640. Myfreetax Age 71 or over – $4,550. Myfreetax Unreimbursed expenses for qualified long-term care services. Myfreetax Note. Myfreetax The limit on premiums is for each person. Myfreetax 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. Myfreetax 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. Myfreetax You cannot include in medical expenses the cost of meals that are not part of inpatient care. Myfreetax Also see Weight-Loss Program and Nutritional Supplements , later. Myfreetax 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. Myfreetax The costs of the medical conference must be primarily for and necessary to the medical care of you, your spouse, or your dependent. Myfreetax The majority of the time spent at the conference must be spent attending sessions on medical information. Myfreetax The cost of meals and lodging while attending the conference is not deductible as a medical expense. Myfreetax 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. Myfreetax Medicines You can include in medical expenses amounts you pay for prescribed medicines and drugs. Myfreetax A prescribed drug is one that requires a prescription by a doctor for its use by an individual. Myfreetax You can also include amounts you pay for insulin. Myfreetax Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Myfreetax Imported medicines and drugs. Myfreetax   If you imported medicines or drugs from other countries, see Medicines and Drugs From Other Countries , under What Expenses Are Not Includible, later. Myfreetax 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. Myfreetax This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care. Myfreetax Do not include the cost of meals and lodging if the reason for being in the home is personal. Myfreetax You can, however, include in medical expenses the part of the cost that is for medical or nursing care. Myfreetax Nursing Services You can include in medical expenses wages and other amounts you pay for nursing services. Myfreetax The services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. Myfreetax 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. Myfreetax These services can be provided in your home or another care facility. Myfreetax Generally, only the amount spent for nursing services is a medical expense. Myfreetax 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. Myfreetax For example, because of your medical condition you pay a visiting nurse $300 per week for medical and household services. Myfreetax She spends 10% of her time doing household services such as washing dishes and laundry. Myfreetax You can include only $270 per week as medical expenses. Myfreetax The $30 (10% × $300) allocated to household services cannot be included. Myfreetax However, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Myfreetax See Maintenance and personal care services under Long-Term Care, earlier. Myfreetax 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. Myfreetax See Publication 503. Myfreetax You can also include in medical expenses part of the amount you pay for that attendant's meals. Myfreetax Divide the food expense among the household members to find the cost of the attendant's food. Myfreetax Then divide that cost in the same manner as in the preceding paragraph. Myfreetax If you had to pay additional amounts for household upkeep because of the attendant, you can include the extra amounts with your medical expenses. Myfreetax This includes extra rent or utilities you pay because you moved to a larger apartment to provide space for the attendant. Myfreetax Employment taxes. Myfreetax   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. Myfreetax 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. Myfreetax For information on employment tax responsibilities of household employers, see Publication 926, Household Employer's Tax Guide. Myfreetax Operations You can include in medical expenses amounts you pay for legal operations that are not for unnecessary cosmetic surgery. Myfreetax See Cosmetic Surgery under What Expenses Are Not Includible, later. Myfreetax Optometrist See Eyeglasses , earlier. Myfreetax Organ Donors See Transplants , later. Myfreetax Osteopath You can include in medical expenses amounts you pay to an osteopath for medical care. Myfreetax Oxygen You can include in medical expenses amounts you pay for oxygen and oxygen equipment to relieve breathing problems caused by a medical condition. Myfreetax Physical Examination You can include in medical expenses the amount you pay for an annual physical examination and diagnostic tests by a physician. Myfreetax You do not have to be ill at the time of the examination. Myfreetax 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. Myfreetax Prosthesis See Artificial Limb and Breast Reconstruction Surgery , earlier. Myfreetax Psychiatric Care You can include in medical expenses amounts you pay for psychiatric care. Myfreetax This includes the cost of supporting a mentally ill dependent at a specially equipped medical center where the dependent receives medical care. Myfreetax See Psychoanalysis, next, and Transportation , later. Myfreetax Psychoanalysis You can include in medical expenses payments for psychoanalysis. Myfreetax However, you cannot include payments for psychoanalysis that is part of required training to be a psychoanalyst. Myfreetax Psychologist You can include in medical expenses amounts you pay to a psychologist for medical care. Myfreetax 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. Myfreetax 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. Myfreetax A doctor must recommend that the child attend the school. Myfreetax 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. Myfreetax 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. Myfreetax 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). Myfreetax Also see Vasectomy , later. Myfreetax Stop-Smoking Programs You can include in medical expenses amounts you pay for a program to stop smoking. Myfreetax 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. Myfreetax Surgery See Operations , earlier. Myfreetax 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. Myfreetax This includes teletypewriter (TTY) and telecommunications device for the deaf (TDD) equipment. Myfreetax You can also include the cost of repairing the equipment. Myfreetax 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. Myfreetax This may be the cost of an adapter that attaches to a regular set. Myfreetax 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. Myfreetax Therapy You can include in medical expenses amounts you pay for therapy received as medical treatment. Myfreetax 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. Myfreetax This includes transportation. Myfreetax You can include any expenses you pay for the medical care of a donor in connection with the donating of an organ. Myfreetax This includes transportation. Myfreetax Transportation You can include in medical expenses amounts paid for transportation primarily for, and essential to, medical care. Myfreetax 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. Myfreetax Car expenses. Myfreetax   You can include out-of-pocket expenses, such as the cost of gas and oil, when you use a car for medical reasons. Myfreetax You cannot include depreciation, insurance, general repair, or maintenance expenses. Myfreetax   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. Myfreetax    You can also include parking fees and tolls. Myfreetax You can add these fees and tolls to your medical expenses whether you use actual expenses or the standard mileage rate. Myfreetax Example. Myfreetax In 2013, Bill Jones drove 2,800 miles for medical reasons. Myfreetax He spent $500 for gas, $30 for oil, and $100 for tolls and parking. Myfreetax He wants to figure the amount he can include in medical expenses both ways to see which gives him the greater deduction. Myfreetax He figures the actual expenses first. Myfreetax He adds the $500 for gas, the $30 for oil, and the $100 for tolls and parking for a total of $630. Myfreetax He then figures the standard mileage amount. Myfreetax He multiplies 2,800 miles by 24 cents a mile for a total of $672. Myfreetax He then adds the $100 tolls and parking for a total of $772. Myfreetax 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. Myfreetax Transportation expenses you cannot include. Myfreetax    You cannot include in medical expenses the cost of transportation in the following situations. Myfreetax Going to and from work, even if your condition requires an unusual means of transportation. Myfreetax Travel for purely personal reasons to another city for an operation or other medical care. Myfreetax Travel that is merely for the general improvement of one's health. Myfreetax The costs of operating a specially equipped car for other than medical reasons. Myfreetax 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. Myfreetax You may be able to include up to $50 for each night for each person. Myfreetax You can include lodging for a person traveling with the person receiving the medical care. Myfreetax 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. Myfreetax Meals are not included. Myfreetax See Lodging , earlier. Myfreetax 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. Myfreetax However, see Medical Conferences , earlier. Myfreetax Tuition Under special circumstances, you can include charges for tuition in medical expenses. Myfreetax See Special Education , earlier. Myfreetax 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. Myfreetax Vasectomy You can include in medical expenses the amount you pay for a vasectomy. Myfreetax Vision Correction Surgery See Eye Surgery , earlier. Myfreetax 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). Myfreetax This includes fees you pay for membership in a weight reduction group as well as fees for attendance at periodic meetings. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax 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. Myfreetax See also Weight-Loss Program under What Expenses Are Not Includible, later. Myfreetax 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. Myfreetax The cost of operating and maintaining the wheelchair is also a medical expense. Myfreetax 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. Myfreetax X-ray You can include in medical expenses amounts you pay for X-rays for medical reasons. Myfreetax What Expenses Are Not Includible? Following is a list of some items that you cannot include in figuring your medical expense deduction. Myfreetax The items are listed in alphabetical order. Myfreetax 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. Myfreetax Also, any expense allowed as a childcare credit cannot be treated as an expense paid for medical care. Myfreetax Controlled Substances You cannot include in medical expenses amounts you pay for controlled substances (such as marijuana, laetrile, etc. Myfreetax ), even if such substances are legalized by state law. Myfreetax Such substances are not legal under federal law and cannot be included in medical expenses. Myfreetax Cosmetic Surgery Generally, you cannot include in medical expenses the amount you pay for unnecessary cosmetic surgery. Myfreetax 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. Myfreetax You generally cannot include in medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction. Myfreetax 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. Myfreetax Example. Myfreetax An individual undergoes surgery that removes a breast as part of treatment for cancer. Myfreetax She pays a surgeon to reconstruct the breast. Myfreetax The surgery to reconstruct the breast corrects a deformity directly related to the disease. Myfreetax The cost of the surgery is includible in her medical expenses. Myfreetax Dancing Lessons You cannot include in medical expenses the cost of dancing lessons, swimming lessons, etc. Myfreetax , even if they are recommended by a doctor, if they are only for the improvement of general health. Myfreetax 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. Myfreetax Electrolysis or Hair Removal See Cosmetic Surgery , earlier. Myfreetax 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. Myfreetax Funeral Expenses You cannot include in medical expenses amounts you pay for funerals. Myfreetax 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. Myfreetax 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. Myfreetax Hair Transplant See Cosmetic Surgery , earlier. Myfreetax 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. Myfreetax You cannot include in medical expenses the cost of membership in any club organized for business, pleasure, recreation, or other social purpose. Myfreetax 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. Myfreetax For more information, see Health Coverage Tax Credit , later. Myfreetax Health Savings Accounts You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. Myfreetax Contributions to health savings accounts are deducted separately. Myfreetax See Publication 969. Myfreetax Household Help You cannot include in medical expenses the cost of household help, even if such help is recommended by a doctor. Myfreetax This is a personal expense that is not deductible. Myfreetax However, you may be able to include certain expenses paid to a person providing nursing-type services. Myfreetax For more information, see Nursing Services , earlier under What Medical Expenses Are Includible. Myfreetax Also, certain maintenance or personal care services provided for qualified long-term care can be included in medical expenses. Myfreetax For more information, see Long-Term Care , earlier under What Medical Expenses Are Includible. Myfreetax 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. Myfreetax Insurance Premiums See Insurance Premiums under What Medical Expenses Are Includible, earlier. Myfreetax Maternity Clothes You cannot include in medical expenses amounts you pay for maternity clothes. Myfreetax Medical Savings Account (MSA) You cannot include in medical expenses amounts you contribute to an Archer MSA. Myfreetax You cannot include expenses you pay for with a tax-free distribution from your Archer MSA. Myfreetax You also cannot use other funds equal to the amount of the distribution and include the expenses. Myfreetax For more information on Archer MSAs, see Publication 969. Myfreetax 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. Myfreetax You can only include the cost of a drug that was imported legally. Myfreetax For example, you can include the cost of a prescribed drug the Food and Drug Administration announces can be legally imported by individuals. Myfreetax 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. Myfreetax Nonprescription Drugs and Medicines Except for insulin, you cannot include in medical expenses amounts you pay for a drug that is not prescribed. Myfreetax Example. Myfreetax Your doctor recommends that you take aspirin. Myfreetax Because aspirin is a drug that does not require a physician's prescription, you cannot include its cost in your medical expenses. Myfreetax Nutritional Supplements You cannot include in medical expenses the cost of nutritional supplements, vitamins, herbal supplements, “natural medicines,” etc. Myfreetax unless they are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. Myfreetax Otherwise, these items are taken to maintain your ordinary good health, and are not for medical care. Myfreetax 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. Myfreetax For example, the cost of a toothbrush and toothpaste is a nondeductible personal expense. Myfreetax 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. Myfreetax 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. Myfreetax (See Braille Books and Magazines under What Medical Expenses Are Includible, earlier. Myfreetax ) Swimming Lessons See Dancing Lessons , earlier. Myfreetax Teeth Whitening You cannot include in medical expenses amounts paid to whiten teeth. Myfreetax See Cosmetic Surgery , earlier. Myfreetax 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. Myfreetax 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. Myfreetax 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). Myfreetax 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. Myfreetax Also, you cannot include membership dues in a gym, health club, or spa. Myfreetax 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. Myfreetax See Weight-Loss Program under What Medical Expenses Are Includible, earlier. Myfreetax 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. Myfreetax 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. Myfreetax This includes payments from Medicare. Myfreetax 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. Myfreetax Example. Myfreetax You have insurance policies that cover your hospital and doctors' bills but not your nursing bills. Myfreetax The insurance you receive for the hospital and doctors' bills is more than their charges. Myfreetax 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. Myfreetax Health reimbursement arrange