You can deduct any expense you pay for the prevention, diagnosis or medical treatment of physical or mental illness, and any amounts you pay to treat or modify any part or function of the body for health—but not for cosmetic purposes. (So you can deduct the cost of LASIK eye surgery to correct your vision, but not the BOTOX® Cosmetic injections to smooth the wrinkles around your eyes.) You can also deduct the cost of transportation to the locations where you can receive this kind of medical care, your health insurance premiums, and your costs for prescription drugs and insulin.
Medical expenses are only deductible if you itemize, and only if they exceed 10 percent of your Adjusted Gross Income. You can only deduct the medical and dental expenses that exceed those percentages.
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
Beginning Jan. 1, 2017, all taxpayers may deduct only the amount of the total un reimbursed allowable medical care expenses for the year that exceeds 10% of your adjusted gross income.
Example: Emma's Adjusted Gross Income was $100,000, and she spent $8,000 on medical expenses. She and her spouse were both under age 65 in 2014. Because her expenses did not exceed 10 percent of her AGI, she cannot take the deduction for the amount above $7,500. Her deduction is $0.
Qualified long-term care expenses are treated as medical expenses subject to the 10 percent of AGI floor. Medical expenses also include the premiums you pay for qualified long-term care insurance. However, the amount of premium you can deduct is limited based on your age. For 2014, deductible premium amounts range from $360 to $4,550, depending on the covered person's age at year end.
There is an exception for qualifying health insurance premiums paid by eligible self-employed individuals. Such costs can be deducted as adjustments to income which means eligible taxpayers can deduct 100 percent of their qualifying health insurance premiums on page 1 of Form 1040. (In other words, this write-off is available whether you itemize or not.)